UCCREV

I assume that you manually bled the brakes (pedal to floor etc.) Well, if you did you probably need to replace the Master Cylinder and Junction Block. Here's why. During normal brake operation the pistion/cup in the Master cylinder traves a short distance in the cylinder bore. This keeps this area clean, while the rest of the cylinder (in front of the piston/cup) never sees the piston/cup.This area in the cylinder bores tends to corrode and pit so when you manually bleed the system, the cup travels in this area and is damaged. This is why when you replace brake pads you should only pump the pedal its normal distance to move the pads to the rotors. That said, if you want to go through the bleeding squence once again try this; (2 person manual bleed) bleed the master cylinder first (rags under MC, crack open lines, PARTIALLY depress and hold brake pedal, close lines, repeat until no air), bleed the junction block next (crack open one top line, Partially depress brake pedal,etc. etc.) bleed next upper line in junction block, bleed the 2 lines that goe to the front wheels (still at JB) next, finally bleed at both front wheels (all bleeder screws starting at lowest). Now in regards to the "Brake Failure" light, the Junction Block contains a "pressure differential switch" that grounds out the wire to the BF light. This is a split hydraulic system, so if you have a catstrophic loss of system integrity, at least 1/2 of the brakes will function. The JB has a piston that slides left to right. When there is equal pressure on both sides of the piston, it stays centered and no light. When one side has lower pressure, the piston moves to that side and grounds the switch hence the BF light comes on. The first time you stroked the brake pedal, this piston moved tto the low pressure side and is probably stuck there. The JB is a notorious repository for corrosion (its low in the circuit, water would gather there). The way to reset the valve is (after bleeding the system) break open line on one side of the JB, have assistant PARTIALLY depress brake pedal, hold and close line. You will probably have to do this repeatedly and if no response from one side, try the other. NOTE: the JB has an electrical connection on the top, if brake fluid is weeping from there, REPLACE IT!!!!!! There should never be fluid there, and if there is the seals in the valve have failed. DON"T SCREW AROUND WITH THIS, its your brakes for godsake. If this thing comes around without part replacement, I would bleed the rear brakes too, sounds like this car is overdue for a brake flush anyway (remember Volvo recommendation, every 30K or 2 years).
Good Luck

FSB