I have a 2002 s40 with 145,000 miles. I have kept the maintenance up on it and I just found oil in the coolant. I know that it is oil and not tranny fluid because my oil is low. My Volvo mechanic told me over the phone it was probably a bad head gasket and I was looking at $2000 to $2500. I am a decent shade tree mechanic and I have fixed my fair share of head gaskets, but I have never seen oil in the coolant, I have always seen coolant in the oil with a head gasket failure. The car never over heated and it is not modified, just driven, mostly easy...Any thoughts on things that I can check without having to take it into the shop?

 

Check the transmission oil for water contamination.Found this info on your issue you should see the dealer.

TNN43-48-2005-12-20 Title: Coolant Contamination in Automatic Transmissions
The root cause for some automatic transmission failures is glycol contamination from the engine cooling system. Severe cases of contamination are easy to detect by a visual inspection: The transmission oil will have a milky appearance and there may be signs of oil in the coolant reservoir. Less severe cases are impossible to detect without doing a chemical analysis of the transmission oil. This slight contamination is easy to overlook and will result in a repeat transmission failure. A small leak from the cooling system into the transmission can cause driveability problems long before there are any visual signs of contamination.

 

I believe these motors have an aux. oil cooler that fails, located on the oil pan, to the right of the drain plug, 4 torx bolts, 2 coolant hoses.