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I think you'll be happy with the 205/60's, I did something similar to my '70 164 back in the day, (I believe I used 195/70's at the time, also on widened wheels) and it was a definite improvement.
As an aside, I never understood Volvo's tire philosophies back then, whereby many of their cars ended up woefully under-rubbered. The early 164S was marginal, with a 6.85-15 (roughly a 175R15 equivalent) on a 4.5" wheel. But it got worse... they went to the wider 5.5" wheels on the early 164E's, but shod them with 165R15's! Those tires had to work pretty hard on a 140 sedan, never mind the 164, with about 250 lbs more mass. IIRC, they went to 175R15's on the later E's.
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Gary L - 142E ITB race car, 73 1800ES
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