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Has the cooling fan been coming on? If not it could be the fan itself, the relay or even the ECM which tells the fan to come on when the A/C is on. The higher temp range t-stat wouldn't cause the overheating unless it was bad. Usually when we see an overhaeting 850, the fan not running is the reason. The car overheats when it's stopped. The A/C being low on refrig. will cause higher then normal condensor temperatures, which will lead to overheating.
These are the usual fixes for overheating in these, i hope your replacement t-stat was a volvo one. We've seen a lot of aftermarket ones fail brand new, remeber to place the hole in the right place.
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