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I think what's going on is the transmission mount is bad. THis is a rubber block right at the back end of the trans. The shifter is mounted on the body, and the linkage pivots from the transmission- which is only attached by rubber mounts. When the mounts go bad the trans is in a different place relative to the shifter, and things don't line up. There are some adjustments that can be made to the shifter- it's like a turnbuckle- but I wouldn't do any of that without confirming that the rubber mount is intact.
Here's a place that sells the mounts:
http://www.fcpgroton.com/volvo240mounts.htm#tranny_mount
And here's what the shift linkage looks like. If the linkage is very loose, there's a plastic bushing in the bottom pivot that can wear out or split, but that does not sound like your problem here. Good luck!
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Rob Bareiss, New London CT ::: '87 244DL/M47- 221K, 88 744GLE- 202K, 91 244 181K, 88 244GL 145K
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