Sounds like the rear blower motor is acting up. It could be a blower resistor/blower motor or wiring connections. The rear paneling will have to be disassembled for inspection and testing of the blower motor assembly. When it doesn't work, you can try hitting the paneling with your fist in the area of the blower motor to see if it will come back on.
most commonly cause is idle air control valve usually located bottom of throttle body take rubber air duct off and spray real good carb spray wait 30 minutes to dry and it should run better
Very likely is the sending unit, as you suggest. There are usually separate units for the temperature gauge and the fan switch though. Check YouTube for some videos, e.g.
http://www.youtube.com/watch?v=e3bASQM4EYs: How To Diagnose Replace Volvo Engine Coolant Temperature ETC Sensor V70 S60 S80
http://www.youtube.com/watch?v=gcJofnHEULc: How To Replace Volvo ETC Sensor
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