Hi, I hope this helps.

First, the easiest to answer is about the choice of thermostat: if you really relish heat, get the one (a quality one from your Volvo dealer) marked 92C (rather than the 89 or 87). It's part no 273307-9. And yes, the few degrees difference (3 C or almost 6 F) does make a noticeable difference in how much heat you'll feel (assuming your heating system is good).

The next easiest thing to address is your comment, "...The temperature gauge is no help. It's all over the place like all my other 240s...." If your other 240s are also '86-on, the chances are that your temperature compensation boards (installed after '85) are all shot, a very common problem. If you look up, on this Brickboard forum about the TCB, you'll learn how to remove them (don't bother replacing them) and jumper their connections so that your gauge works accurately again, like '84 and earlier cars. [I've heard speculations as to why Volvo put in the TCBs, but in any case, they're just an unnecessary pain, and worse than useless]. With such a TCB-free, accurate gauge, the temperature (with a 92C thermostat) should show around 9:15 or 9:30.

Now, as to why you don't have heat, and possibly another factor in a fluctuating temp gauge (although you should get rid of your TCB anyway), you could have an air bubble in your cooling system. If you installed a quality thermostat previously, there should have been a "bleeder" on it -- either a small hole with a tiny jiggle stick, or even a tiny ball valve -- that requires you to install the thermostat rotated so that the bleeder is on the highest side (noting that the thermostat sits in its housing slightly tilted, or "canted"), letting any air bubbles pass through the thermostat and escape in the expansion tank.

And to avoid any aggravation later, install the thermostat with a new rubber seal (no chemicals or gaskets), and tighten the two nuts only "two finger" tight -- i.e., use only two fingers on the ratchet handle. You shouldn't need any more torque to ensure against leaks, and you don't want to strip or break the studs, something that I've heard often on this forum from folks who overtightened them.

Good luck.