Having been through something similar but a bit more dramatic this summer (hose from the transom to the P/S cooler popped off, filled bilge with salt water, overheated engine) here are a few things more to check:
If this model used flappers in the Y pipe (I know Volvo discontinued them at some point but not sure what year) on that side they would have melted and could have dropped down in the pipe and can block the exhaust.
I replaced the flappers on both sides, the OMC Cobras of the original style used flappers.
I took off the exhaust manifolds and filled them with acetone (less surface tension than water, will find minute cracks). Lucky no leaks. When I was waiting to get towed in, I had an IR thermometer on the boat and check the manifold temps....
375*F...I guess OMC made a good manifold.
Then I knew that sometimes the water tube gaskets in the drive can be melted in a bad overheat. Mine were OK but the plastic guide for the bottom gasket was melted, so I replaced that (of course had to split the drive).
When I had the manifolds off I checked for rust in the exhaust ports in the head (sign of water, could be bad exhaust or cracked head) lucky found none.
Checked compression, OK same as 3 years ago.
Had the boat out 4 times since, so far so good.
Find out if that model had flappers....
Edit, did it for you...here is the OMC version of the joint venture drives of which your Volvo is the Volvo version, looks like you have the same flappers as I do and you should therefore pull off that manifold and see what it looks like (probably a melted mess)
looky here....I can't look up Volvo parts but I can do that for OMC or the joint venture models (94-98).
http://www.crowleymarine.com/johnson-ev ... /56423.cfmPart #32
add to yearly maintenance, check the hose clamps on this little hose...
Part #9 is the little bastige that ruined my day...make sure those clamps are TIGHT...
http://www.crowleymarine.com/johnson-ev ... /56730.cfmand in your case....remove the feed hoses for the manifolds and ream em out with a drill bit. Or if getting really rusted just replace the whole thermo housing, #23, $90 now I paid $60 about 8 years ago...
http://www.crowleymarine.com/johnson-ev ... /56723.cfm