A friend of mine owns 1996 940 turbo wagon, equipped with B230FT engine. It's suddenly started blowing blue-ish smoke, not long after it's started, which gets worse.

I thought 'must be the turbo'. So took hose from intercooler to turbo off, expecting to find front of turbo, and the hose full, of oil - but nothing - all dry. Also, the impeller (or is it turbine?)shaft is fine, and no bits of aluminium casing everywhere!!

So maybe head gasket? Did compression test, all ok and even. Pressurised cooling system - again ok. And no water loss. Spark plugs ok as well. No mis-fire, doesn't overheat, runs fine - for now! Obviously something wrong though. Could head gasket have failed, from oil way to cylinder, and oil coming through exhaust?

The only other thing I noticed was faint smoke coming from where back of turbo meets exhaust downpipe. I notice oil feed to turbo close by.

Head gasket or turbo, head gasket or turbo........or something completely different???

The leak usually starts on the exhaust side of the turbo, if the miles are six digits you most likelly need a rebuilt on that turbo.
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1996 960 121,000

Check the following:
-Intake system for cracks or breaks in intake hoses
-Hoses around turbo for cracks, splits, etc.
-Clogged flame trap or oil breather box

If these don't solve your problems, then consider a clogged turbo oil drain line. Last of course is the turbo unit itself, or perhaps a head gasket. How many miles on the engine?