Hi Andrew,
I have the same problem with my car also. The heat either on full bake or it's
off. I'm going to put up with it because it's cold out now. The heater contol
valve like Paul mentions never gives much of a fine adjustment but mine is
just not fine enough.

To replace the heater valve you can buy the aftermarket original syle or
you can buy the update kit from Volvo. I think the update type heater valve may
give a finer adjustment. I installed one once and it was even easier than the
original style. However, you need an extra piece of plastic or copper pipe to
connect the new style hose to the original, and they don't cover/provide that in the instructions. You'll also need some metal duct tape to cover the big hole left in the heater because for the new style valve they don't use a thermostatic coil in the heater housing. Hope this helps you,
Dave 82 242ti 263k mi.