I had that same problem with a replacemnt key for my 960, the dealer key just wouldn't work after 3 tries. I bought a Volvo blank and went to the local Wal-Mart that just opened, had a brand new machine that could cut the steel keys, and the local dealer actually told me to go there.

The issue is for a machine to cut the steel key, there's different anvils and cutting blades used compared to brass keys, and the dealer explained that their machine was good most of the time, but every so often they fail, and that is due to the machine getting the cutting surfaces worn down, and a new or well maintained machine works every time.