"...to replace it I have to drop the transmission pan - is this correct?"

Yep.

"Any idea of how big a job it is to replace this?"

You must drop the exhaust pipe to gain working room. When I did daughter's '86, it took me probably 4-6 hours. I drained the tranny and dropped the pan one day and worked on the tranny the next day. I let the ATF drip out overnight (messy, messy...).

You won't need a second mortgage to buy a new cable from Volvo.

"...the shift indicator has been on (indicating the overdrive was not working?) - could this have anything to do with it?"

Nope. Most likely the OD relay needs to be resoldered ($0) or replaced (about $40). Resolder your fuel pump relay, too, before it leaves your daughter stranded in the middle of nowhere. As with the OD relay, $0, no risk, 15 minutes, clean 'n easy job.

If it helps nothing, you've lost nothing.

"...a thirst for transmission fluid..."

Carefully inspect the cooling lines where they go through the support brackets. Often they'll vibrate under the clamps, chaffing pinholes in the lines. Then they'll leak only when the engine runs.

You can repair this by cutting out the worn section (about 2-3", use a tubing cutter) and patching with a short piece of very high quality, high pressure fuel injection fuel hose. Use aircraft-type clamps. Works great. Then secure the lines to the brackets so they won't vibrate -- I use plastic zip ties for this, and wrap 4-5 layer of electrical tape around the line first.

Also, depending on miles, the rear seal (and rear bushing) of the tranny might be worn. Usually happens around 150-200k miles, more or less.

--
Don Foster (near Cape Cod, MA)