Most likely it is a cracked head. I saw a remanufactured on
http://www.ebay.com for $600.00 + $ 20.00 shipping. The gasket is around $100.00 I also saw one of these on ebay.
It cost me $600.00 to get one repaired but it had all bent valves.
I would pull the head and look at it as a machine shop can repair them if they aren't to bad. Take a flashlight and look closely between the cylinders for cracks. I would attempt to get the head removed and checked at a machine shop and then buy the one on ebay if it costs to much to repair it. You also need to inspect the block for damage.
You can also buy a used one at a scrapyard. Around Atlanta where I live two yards buy 95% of the Volvo's keeping the price high. Be very careful removing the top piece as they crack very easy. Use a plastic mallet and bang around all sides. They have pins which break if you use a screwdriver.
Make sure to mark the camshaft gears and the camshaft if you remove them. They can turn for timing adjustment so use a scribe or two punch marks. Otherwise you might have to go to a dealer.