The other suggestions (switch, hi/lo relay under the hood) which are easier to check don't help, consider another possibility.

I'm not sure which year this started (and whether your '88 model is included), but in the later 240s such as my '93s, Volvo changed and moved the main headlight relay (not to be confused with the step relay, still in the engine compartment) from inside the engine compartment to inside the dashboard. It's very hard to get to, being located below the radio, behind the upper vents in the center section of the dash.

That relay (or more correctly, its plug) is prone to overheating because its wires carry the full load of the headlights' current), and it's prone to fail. Somewhere on this forum there are pictures of the burned (charred) terminal and relay contacts.
The failure of this, however, is exactly as you describe your problem -- specifically, no headlight function, and the high beam only works when you pull the stalk to flash (because the high beam flash function doesn't flow through this relay, I believe).

This is especially likely if you're using higher wattage headlight bulbs, but it can occur with OEM wattage, too.

Anyway, this might be your problem -- you should try to search this in the archives.

Good luck.