The most common problem that triggers this is a failed PNP switch
on the transmission. The switch is about $75 and maybe another
$225 to replace it.

See http://volvospeed.com/Repair/pnpswitch.htm

By the way, was it cold when you saw this? The problem typically
appears the first cold morning of the year.

Also, there are other possibilities and the error code from the
transmission is what should really be checked. But, the PNP switch
is a very common failure.

If it is the PNP swich you can often clear it by turning off the
engine and restarting (I'd wait til it warms up, though). Eventually,
it gets bad enough where it won't clear. Also, the tranny may lock
itself into third gear (limp home mode) so it will seem like
the car has no acceleration as it starts out in 3rd.