It really depends on what you want the car to do. If all you want is reliability, but you aren't going for blazing acceleration, then I would stick with the Volvo engine and rebuild it. If you want to really increase it's performance, then you could go with the V8. A word of caution: A V8 conversion will run you AT THE LEAST $5,000 (US). That's alot of money to spend if all you are looking for is reliability. You can get quite a lot of horsepower out of a turbo brick, even up to 500hp (reputedly). Check out http://mcbrooms.com/volvo/fast700.htm for some tips. The article is a little old, and not all the links on it work, but it will show you what you can do to a turbo brick to make it fly. You can spend quite alot of money doing that as well, though, so it's really what you want to do with it. Personally, I like the idea of cranking 300+hp out of a 4 cyl Volvo, you'll keep much of the gas efficiency you would lose with a V8.
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Manual tran 16v Wagon... Booyah!