Ok, I got the head off and found some suprises, and I am not sure what to make of them. The first came when I got the timing cover off:

The crank is at the timing mark. This looks like one, maybe two teeth off, yes? What effect would this have on the engines performance?
Then when I got the valve cover off. I found this rubbery ring, (rtv maybe?) sitting here:

here it is again up close:

What is it, and how did it get into the cam area????????
Also, I am going to do the timing belt, and odered the special crank pulley holding tool from ipd. My luck, it is backordered, so I have to wait a week for it. Boy is my wife happy. Anyhoo, when the head came off, the two outer sets of valves were nice and tan, and dry. The center two, however, were dark and moist looking, and appear to have been pushing oil or coolant between them. There is no carbon on the stems, from what I can see. Here is what it looks like:

and the cylinders:


I am really torn here. Should I slap it back together and hope for the best? Wifey has given the green light for $600 for rebuilt head from fcp groton, if I REALLY REALLY think it needs it. Please take the time to answer, my knuckles are bloody, my back is ruined and my brain is missing on a few cylinders right now and I just keep waffling back and forth. Please volvo gods, smile upon me.