940 Non-Turbo

I've been having this bad idling with sudden drop in RPM from 900 to 500 and then up again while at park.
I understand that bad idling can be caused by many things, like vacuum leak, poor electric contact, bad sensors and clogged up hose or throttle body. Not forgetting bad plugs and wires.
From the many postings I've read most have complained about high idling that is very often caused by vacuum leak. In my case, it is more like sudden low idling like the RPM needle jumping at 900 to 500 suddenly while at park. Idling is never beyond 1000 rpm. What can I zero in from this observation?
Is this an air leak or electrical fault, or simply the IAC?
I don't know how to check the IAC except take ohm readings at the electrical point. The ohm reading at the IAC is 8800 ohms while the electrical connectors that goes to the ECU (I think) reads something like 34000ohms. Also when I start the engine with the electical connector removed from the IAC I get a high rpm like 1200. With the the IAC plugged up to the connector rpm starts at 900 and then needle start to bounce between 500-900 with sudden drop in rpm causing car to shudder. Another observation is that when I unplug the IAC connector while idling, the rpm shot up to 1200 which I suppose is normal. The strange part is when I plugged it back again when engine is still running, idling maintains the 1200 rpm and not drop back to 900. But if I start the engine with the IAC plugged up I get 900 rpm.
Is there anything wrong with the IAC?
Please help as I don't want to spend any more on unnecessary parts. My mechanic is suggesting to do a major cylinder overhaul but that would be my last option and this will most certainly cost me a bomb, which I would like to avoid, not that I could afford it now.

Thanks for all the advice.

Laozong