It's good to know you don't trust mechanics, as many of them are liars. From what I've seen, Volvo engines don't just destroy themselves under normal use. It doesn't seem likely that your sister's car needs a new engine, and don't let anyone convince you that it does need one until you've had a second and third opinion from other mechanics (at other shops).

As rhaire said, it's more likely just a coolant leak or a blown head gasket. You should do your best to find the source of the splattered coolant yourself. If you can find the leak, you'll be much closer to finding the problem. You said it's happening externally, so it shouldn't be hard to find. It may be a longshot, but coolant may be flowing onto wiring connections that it shouldn't be, causing intermittent electrical faults and making the car run bad at times. I suggest also taking a look at the coolant and looking for oil floating on top (rainbow colored fluid if it's light). This would help corroborate the mechanic's theory that coolant is in the oil.

They may be a ripoff, but the dealer (or honest Volvo specialist mechanic) is the best place to get a proper diagnosis. You can take the car somewhere after they find out what's wrong, but they're the least likely to lie to you.
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Isaac Babcock - '83 245DL 'Borkie' and '83 244 turbo project