I am posting this in the hopes of helping others with the same problem.
I have done tons a research and there appear to be lots of others who have had this problem and they have done everything from replacing the PCV system to replacing the turbo and some have gone as far as to rebuild the engine.
Here are the symptoms, what I tried and then what the final fix was.

1995 Volvo 850 turbo station wagon with over 180,000 miles.
Grayish-blue smoke out the tail pipe after idling for 10 min or more.
Same smoke when taking off from a red light or a stop sign.
High (~1000) RPM at a hot idle.
Hard to start when hot with the occasional rough idle for a min or so.
Reduced MPG.
No trouble codes.

The first thing people do is replace the PCV system thinking that it is clogged.
I by-passed (vented to atmosphere) mine with no change.
If that does not work people replace the turbo thinking that it is letting oil past the turbo's bearings and it is getting into the raw exhaust and being burnt up by the catalytic converter.
I did not replace the turbo, the car was not using a excessive amount of oil (mine uses ~1 qt every 5,000 miles)
Others have rebuilt their engine even though the compression was fine and they were not using oil.
I replaced the coolant temp sensor and the thermostat thinking the engine was running to cold and the ECU was over fueling because it thought the engine was to cold.
No change.
I replaced the front O2 sensor because that one controls the air fuel mixture.
No change.
I cleaned the MAF sensor.
No change.
New air filter.
No change.
Tried different brands of gas (we always use premium).
No change.
Ran it in third gear (autobox) at 85-90 mph for 30 miles to "blow the carbon out".
That fixed it for a week.

The final repair was a distributor cap and rotor.
A year or so ago when I did a tune up I did not replace the cap and rotor because the auto parts store did not have them in stock and I forgot about them.
The smoking issue started about a month after I did the tune up.

In conclusion if your Volvo is smoking like mine was then start with a complete tune up, that means new spark plugs, spark plug wires and a distributor cap and rotor.
That is considerably cheaper and easier than the PCV system let alone the turbo.

I hope this helps some poor sap who's mechanic wants to soak him for a new turbo when it may not be needed.

EDIT:The reason for the smoking and poor MPG was because the cap and rotor were bad and there was a weak spark to the cylinders and unburnt fuel was being dumped into the exhaust and being burnt up by the catalytic converter. Also the exhaust smelled like a foundry.

 

I know when I replaced the cap and rotor on my 740 N/A, I fixed a cold misfire, increased throttle response, and had a smoother engine. It also fixed a VERY intermittent no start condition that was remedied by pounding on the distributor cap. The parts had 52,000 miles on them. I change plugs every 25,000, and for the price, may start doing a cap & rotor at the same time!

 

which hose did you vent to atmoshere, if the one to the ptc is still hooked up it can still pull oil in, my 95 turbo wagon was doing it somewhat fierce, how is your oil level

 

Oil level is fine, always has been.

I vented 2 hoses to atmosphere, I put one hose right ontop of the cylinder head.
The place where the PCV connects to and then I also hooked a hose to the vent box to make sure any gases that may come out of there are directed away from the engine bay.
I have since put it all back together, I did this to try and eliminate the possibilities for the smoke.



You can see the hoses I used, they are long enough to go below the frame but not drag on the ground or hit anything and I used worm clamps and zip ties to hold them kin place.
But again this was a temp "repair" used for diagnosis.

No way in hell I was going to shell out $300 and 6 hrs of my time to replace the PCV if I was not at least 95% sure that was the problem.
So instead I spent $5 on heater hose.

 

there is another hose that comes in right before the turbo, have you checked that one? as well as make sure your PTC is clean

 

I have replaced the distributor cap and rotor and the car no longer smokes.
So there is nothing else to check, the car is fixed.
That was my whole point of this thread.
If you Google "Volvo smokes" or "smoking Volvo turbo" or something similar you will find lots of people all over the world with this problem.
Thats why I made this thread, so if someone Googles it maybe this will help them.

 

Hmmmm, I am a skeptic.

 

Well everything was put back together and it has not smoked for 2 weeks.
If that changes I will update.
But I am calling it fixed.

 

I wondering if this would fix my issue. I've been going crazy trying to figure out why my car smokes. My oil has been behaving, I've seen virtually no coolant lost. I will definitely try changing plugs and wires because I've already done my rotor and cap.

 

Let us know if that cures your problem.