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I have a '75 164, too.
re: "...the ignition is locked up. The key will not turn it at all.... was in park, she also tried it in neutral...."
The ignition keylock is not mechanically linked to the transmission shifter -- it doesn't matter what gear it's in to free up and turn the key (although, of course, the car's starter will only work in P and N).
re: "...The steering wheel is not locked up and preventing it...."
My car's steering wheel is linked to the ignition keylock (it's locked, unless you turn the keylock). You didn't clarify how much your sister tried to turn the wheel -- a few degrees, or a full rotation? If the wheel turns all the way with the key unable to move, I'd say some linkage isn't working right (broken), and maybe that's what's jammed and preventing the keylock from turning.
re: "...When I started it before, it started with some effort but ran...."
When you say "some effort", what do you mean? Was it hard to start (ignition or fuel sort of thing, where the engine didn't want to easily start running)? This would mean nothing to the present problem.
Or, did you mean that it needed some effort to turn the key in the lock? If so, that might mean that there is something wrong -- e.g., the mechanical linkage with the steering column, dirt or corrosion in the lock cylinder, etc. This could be the reason for your problem now -- that "effort" was an early warning.
re: "...Is it possible someone has stolen a part from it?..."
Seriously, who would want something out of a 30 year old car, except us Volvo-philes, and we wouldn't steal from each other!
Besides, wouldn't there be some sign of damage? Especially dealing with the ignition keylock and steering column parts -- you'd see the dash broken up.
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