Paul-
On my 96 850 wagon I went with the class II Drawtite receiver hitch (rated at 3500 lb.)- same as what IPD sells, but much less at U-Haul. Easy to install- no holes to drill on the wagon (the sedan requires minor drilling). Two bolts into the frame and one through the towing eye on the spare tire well. The hitch is almost invisible when not in use- it sits well under the bumper. I'm towing a 2000 lb. boat with it- works well.
For the wiring I used a converter from U-Haul like the Drawtite Modulite. It draws power for the lights from a wire you run directly to the battery, or you can wire it into the accessory socket under the dash like I did. Your owner's manual has a diagram of this connector- it has several slots available. You need to buy and install a pin for the connector from a Volvo dealer. I can send you the part number if you like. Using a powered converter avoids problems with the bulb out warning light. You still have to tap into the tailights in the cargo area, but the power for the lights is drawn from the 12V wire you run up to the dash or battery, not from the tailight wiring harness.
Post back if you need more details.

daveh