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You are supposed to have a thermostat diverter on the intake so that hot air is drawn from the exhaust manifold when the ambient temperature is below I think 15 degrees Celsius. The is to prevent the carburettors from feezing up in cold weather. Above this temperature it diverts air from behind the headlamp. I think this is to prevent the intake from being blocked by snow and what ever, but this is only guessing. The radiator is oversized for the engine, and the heated air is insignificant. It is still fairly cool. Having less density (warm) air only limits the maximum power out of the engine, but on the B20 the limitation is in the exhaust anyway, not in the amount of air you can get into the engine. The diverter is a common weakness, and probably got removed.
The engine is running hot because you've got the wrong thermostat in it. There are about 3 different temperature thermostats available (specified by Volvo), and with the radiator being so efficient, the thermostat temperature makes a big difference. On my car I had to go to a higher temperature thermostat, because in Winter in New Zealand my car would barely get above the "cold" mark. It would get to about 1/4 in Cape Town in Winter with 20 deg.C, and almost 1/2 in Summer with 35 deg.C.
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