Q&A

The repair to fix this may be quite easy, however determining what is going on here takes some experience diagnosing these cars. The suggestion that the ignition coil is bad is terrible advice, so avoid that.
These models have a few issues that may be part of this problem.
For the above trouble code, I imagine it's a P0128 code? Or a Volvo 1-2-3 code? If so, I suggest replacing the coolant thermostat, this is often the reason for the low coolant temp sensor signal and low coolant temp gauge reading. It's an item that should be replaced every 60k so there's no waste of time or money if that doesn't fix the issue, It should be done anyway.
On any 1998 S70 with an electrical issue, have the Volvo shop check the B+ cable (battery cable at the engine fuse box). These cables have a lot of problems and cause all kinds of weird electrical issues.
In other words, an experienced Volvo tech will address these issues easily, but anyone else will spend more time (and your money) and perhaps not fix it right.
Look for a good Volvo shop near you and have them look at it: http://repairpal.com/directory?address=77373&car_bran...

I don't have the answer, but I do have the same problem. Temp gauge goes down to 0 and car runs really bad, If you turn the engine off and let it set everything go back to normal, although it is getting worse and more often as time passes. So did you find the problem? Thanks