My thermostat recently failed in my 98 S70 but I did not
see the check engine light (I did not scan for codes).
I drove it like this for about two months (it would just
run cold). If you replace the sensor you might as well
do the thermostat since they seem to fail around 60 to 70K
miles and are not that expensive.

I finally replaced the thermostat but did not replace the sensor.
http://volvospeed.com/bay13.htm has the instructions to
replace it yourself (note their warning about not dropping the
rearward torx screw -- I did and it is a pain to fish it out).