There was a letter from Volvo about this issue could occur and a free software patch to prevent it... I had already had the patch but remeber the letter, contact your Volvo dealer, they know about the updated software....
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may have a malfunctioning relay in the ac system that causes the engine to run faster for the extra power to run the compressor or the idle speed solenoid mmay be malfunctioning usually mounted on/with the tbi unit..good luck..
Check charging voltage when running. It should be around 14 volts at the battery terminals. If not, even when revving, then change the alternator.
Then check the battery voltage at rest, a few hours after resting that is. The voltage shouldn't be lower than around 12.5. You can double check battery condition by turning on the vehicle lights and cranking. If the lights dim significantly, then you have a dead battery and you will need to replace it.
Hate to be the bearer of bad news, but when your trans starts slipping, it is failing and will eventually not move the car at all-you need to drive it so that it doesn't slip, which means light on the gas, nursing it until you decide how to proceed. Make sure it is not low on fluid, since that'll hasten the ultimate failure-sorry, not a happy thing.
I was kind of surprised to see your post, I have not run across this problem in my shop yet, maybe just demographics. 1000. bucks to do this job seems high, maybe shop around. I did a little checking on the net and it does seem to be common. I found a very good article, even if you don't want to do it yourself, it may give you some ammo, and help you understand what's involved.