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Higher compression head causes hotter combustion temperatures.
It sounds like your valves are getting hot and seizing in the guides - that's why the idle drops way down low - only a couple of cylinders are firing.
Have the valve guides reamed to the proper clearances.
If the shop "milled out a divider between the intake and exhaust valves" they may have caused part of the problem also by exposing the intake valve and intake valve guide to hot exhaust gases as the intake valve starts to come open. Volvo left that hump of metal in the combustion chamber for a reason - probably to promote swirl and scavenging of the cylinder and also to shroud the intake from hot gases.
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