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Moby Brick--thar she blows!! 900 1992

Long post, sorry:

Just spent all day in the dealer's waiting room developing TMJ syndrome from growling through clenched teeth and wondering if I had brought enough bail money to avoid a long stay in the St Louis County jail before trial for agravated additude ajustment of a dealer's minions. Need technical advice to make less ignorant guess of where to go from here:
Intro:
Spouse bought '92 965 with approx 77,000 "dealer-maintained" miles, from dealer who allegedly maintained it, in March '01, with 24-month, 24K mile "warranty". About 2000 interstate highway miles per month since; mileage now 97k. Wife loves the car

KNOWN (?) technical info
In addition to frequent (every 3-5K miles) oil changes, it has sucked in and blown out somewhere an average of a quart every couple hundred miles starting as best we can tell, within a month or so after we got it. Paid for R & R leaking gasket in cam cover area, with no noticeable effect on oil consumption.
NO visible smoke from tailpipe, but the inside of the pipe is sooty.
Indy compression test shows about 30% low on one cylinder, and 12-18% on others.
Dealer says his compression test shows even 18-20% on all.
Indy says pressuriziing cylinders gives audible indications at oil sump, but not elsewhere.Dealer does not appear to disagree.
Flame trap was cruddy, but not blocked, and no indications from either mech of any blown seals.

Opinions received to date:
Both indy and dealer express opinion that is probably involves rings, and could involve valves or valve guides

Dealer eventually advised yesterday that he thought the likelihood of the "warranty" company refusing to pay because this would be "normal wear" was verry high; that it would cost several thousand bucks to tear down the engine to find out; that the dealership did not "do rebuilds", so the only option from them was a rebuilt engine, but that it would have to be a later engine also requiring a different torque converter at total major parts cost of about $7000 plus labor at $95 per hour and incidentals. (Offered the alternative that we could fill up the oil and take it somewhere else to trade, where they did not know about the problem; we filled up the oil and drove it the 120 miles home to await advise).

There is a competent indy available--doesn't specialize in Volvos, but is intelligent, and not afraid of them and has done timing belt change on this car (as well as several of the oil changes and the compression test). Rates around $45 per hour. I don't mind a bit buying the green books for him if necessary.

Quare:

Anybody have opinions or info on: (1) any different likely causes of the mechanical problem; (2) Most economical alternative to restoration of the vehicle to long-term reliable function (Not including taking it back to that dealer); (3)
other parts which should / must be checked and replaced as long as there is going to be major surgery anyway--e.g., water pump, oil pump, etc? (4) parts number lists for individual parts or kits?
Volvo dealers likely to be reasonable on parts (while the parts dept at this dealer is superb, I have to give them any more profit--obviously their sales dept stuck it to us)?

Gee, I feel better already...TIA








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