Here's a little more info. The engine isn't the original one that came with the car. This 1.9 came out of a V40, and I had another guy install it because I didn't have the time to do it myself, so I don't have a clear memory of what knock sensors were on the replacement block. I asked him if he remembered but he did't recall either.

I called a local Volvo dealer yesterday and their parts tech told me that the original design of the S40 only had one knock sensor, as opposed to the 2 that are on the block I have in the car now. But weird of weird, this block has one connected just behind the starter, which is connected through the harness to the junction strip on the firewall, and another about 6 inches up near the top of the head, which is the one that isn't connected.

This is the early (1G) model, and there isn't a lot of good documentation on that block that I've been able to find. I am not assuming that the parts tech is correct (he didn't really sound too interested in researching this), but I am reassembling the engine and if no one else has the answer will go to the junkyard this weekend to see if I can find another one and take it apart to see what I can find.