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As long as the distributor cap is properly installed, the only way I can see the rotor hitting the inside terminals of the cap is for the distributor shaft bushings to be worn out. With the cap off, try to move the shaft from side to side. It shouldn't move.
I've only seen this once before and that was on a Ford V8 in an early Mustang. This distributor used points and there was no way to get the point setting correct. We replaced the distributor and all was well. On the Volvo, you may be able to get a rebuilt or go with a salvaged one. I've had a number of the Volvo engines and have never had to do a thing with any of the distributors.
Goog luck to you!
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