I had a similar problem on my '98 V70 AWD. Mny others have had the same problem. The lock cylinder/housing is bad. It is encased in a cast aluminum housing and available only that way. Volvo gets your key code and orders one for you that comes already "cast in". The job is a mess to do. Volvo used a saw to cut the bolts and cast housing out of my steering column. I'm not aware that the steering wheel was removed, but another plastic part that supports everything in there needed to be replaced too (not uncommon) and that may have required removing the wheel.

I looked at doing this job myself and it looked like a nasty one, well worth having Volvo do it for about $300.