Sorry to say but that service manager is just wasting your time and is obviously incorrect. The guy then doesn't trust his own techs either? That'd be strange in my world. If the fluid was silvery with a slipping trans, it's toast and that's that, even if the fluid's been changed before.
I'd NEVER let anyone install a used 850 trans in my car as you have no idea how good THAT trans is either and unless they're going to warranty it for you or cover the labor (10 hours book time), it's very likely that you'll pay double labor time to eventually get a Volvo reman trans installed later on but you'll pay 20 hours for total labor and be out the cost of that used trans too as most used major components have a VERY limited exchange warranty, like maybe 30 days.

Now.....I work at a dealer so I know that the OEM Volvo reman trans runs about $1600 itself with a 1 yr, unlimited mileage parts warranty (labor's covered too if THAT fails during that time) and labor is 10 hours (with a new rear main crank seal, a good idea to avoid that cost in the future). I don't know what that dealers labor rate is but the job complete where I'm at is about $2,350 as I've done it several times.