Well, my dear James, you are right (again?). The wire above the electrical connector for the overdrive solenoid is cut. I haven't started to take things apart to see were that wire goes to on the inside of the car, but I'm sure I'll find out soon enough...
P.S. An overdrive solenoid (I know I don't need one) sells for $95 at FCP and $390 at your friendly Volvo dealer...