Transmission problem - up arrow and CEL
 

My mother in-laws 2000 XC70 was running fine until the other day when the up arrow started to flash and the Check engine light went on. She immediately stopped the car and called me for help. I drove the car a couple of miles and noticed that it would not shift into fourth and after driving it for a couple of miles it would struggle to start from a stop. Shifting became erratic and the engine would race at low speeds. Before any of this started the transmission was shifting fine. That night after letting the car cool down I drove it to my mechanic to have him check it out (no change in shifting). Today he called me and told me it was going to need to be rebuilt (exchanged from Volvo) but could still be driven just not very far. I've read several posts online of this exact problem but have not read about that many resolutions except having the transmissions rebuilt. One person did have the fluid changed (against Volvo's recommendations) and this did fix the problem. I also called the Volvo dealer and he mentioned updating the TCM software for $115 which might resolve the issue. What I don't understand about these transmissions is if dirty fluid caused the electronics to fail then why is it bad to change the fluid in the transmission every 30k?

Update: got the car back today. Service center informed me the transmission needs to be rebuilt ~$4000. Mechanic cleared the codes which turned off the CEL and flashing arrow. Drove the car home (about five miles) and the car runs fine. Shifting is the same as it was before the CEL turned on. I'm guessing eventually the problem will come back once the transmission heats up. Will try the home fluid flush method this weekend with synthetic (Type-IV) fluid.

Sounds like the shifter position switch to me. It's mounted on the top of the transmission right where the shift cable attaches to the gearbox lever. Very common problem, at least with the 850s.

Note: I now own the XC70 from my in-law - After flushing the transmission with T-IV synthetic fluid and removing / cleaning the valve body I would like to reset the CEL and "Up Arrow" that is flashing due to a DTC error for the transmission? My OBD-II code reader shows P1618 but I can't reset the computer and disconnecting the battery does not help. Is there an inexpensive scanner I could hook to a computer or other that I would be able to reset the CEL? Update: I went to Advance Auto and their scanner was able to pull an additional code P0756 (bad shift solenoid) and I was able to clear the codes but as expected the problem came back after about ten minutes of driving. Not sure if it is practical to replace all of the solenoids now.