With 125,000 miles, you are approaching the mileage where it would once again be time to change the timing belt, idler and tensioner pulleys, and probably the serpentine belt and pulleys. That means that within the next few months you were looking at a bill for periodic repair/maintenance which would have been in the neighborhood of $1000.00.

Although it may be a bitter pill to swallow, you must consider "crediting" the upcoming costs which you will not now have to pay, against the repair tab you are facing.

As far as engine swaps go, you have to consider the turbo, also. If the engine was starved for oil and failed, the turbo bearings were also starved. Whether of not it survived its hard to say. If you swap in another engine, you must consider whether the new engine is of exactly the same type as the old one, otherwise there might be wiring/electronics issues... the 94 and 95 engines use a different ECU part number.... I don't know whether this has only to do with the wiring for the different OBD systems, or if there are other changes. All the sensors seem to have the same part number.
For an engine and turbo rebuild, whether you have it done, or obtain rebuilts, you're looking at somewhere around $4000.00.
If you've been quoted $2500.00 that's the most reasonable price I can imagine. As has been pointed out in another posting, it's hard to come up with a replacement vehicle for the same money, which would offer the benefits and safety of your Volvo.
Please post your decision, or any other results as you look for a solution. I hope that others weigh in with opinions about this one.

Marty
'96 855T