Just bought this car last week and was really excited to have my first BRICK. Found this 1986 240 with 80,000 original miles on the body and the engine was rebuilt about 8,000 miles ago due to car sitting for a number of years after original owner was too old to drive. Next guy that bought it thought he could put a new battery in it and fill the gas tank up and drive it like nothing ever happened. Needless to say, the car's engine wasn't ready for that kind of labor and blew. Anyhow, I bought the car from a 78 yr old gentleman who has owned around 30 Volvo's over the past 40 years and was the person responsible for rebuilding the motor. It runs like a top and he has been driving the car occasionally for the past 7 years or so and put a total of 8,000 miles on it since it was rebuilt.
Here's my problem... car performed wonderfully when I test drove it. Everything appeared to be working properly but he warned me that there was a wire on the "overdrive" that he needed to fix. When I decided I wanted to come back the next day to purchase the car he informed me that he would fix the wire before I picked up the car. He stated that he had replaced the wire and the overdrive was working perfectly. The day I went to get the car it was drizzling and I had to use my wipers and lights. The wipers appeared to be operating very slowly and I attributed this to a most-likely failing motor on the wipers since all other lights and accessories appeared to be working fine. Two days later I went out to drive the car into town and it would not start. Got a jump, car started. Drove to Autozone and battery was tested as being low but fine. Machine determined that the alternator was not working. Removed alternator, replaced with another and upon starting the car after replacing the alternator the warning lights on the dash stayed on after the car was running and the speedometer did not work. Drove around the block, turned car off and when I attempted to start again it was dead. I know the wiring harnesses are a known issue with these. Are the symptoms I'm describing common with wiring problems? Any help would be appreciated. Sorry this turned out being so long but I wanted to make sure everyone understood what I'm dealing with. Feel free to ask any questions. I'm not a mechanic of any kind but know some basics. I will continue to check the forum daily for any possible suggestions. Thanks in advance and I'm glad there appears to be sites like this to look for assistance.

What proof have you that #2 alt was OK???? Also, if the alternator light does NOT come on on ign b4 crank-check the connection on the alt, then check the globe in dash-both are ESSENTIAL. The alt will NOT work without both. Learnt at school of hard knocks.

As you noted, 1986 240s had defective insulation in the engine wiring harness. Check the insulation on the small red wire that goes from the alternator, through the grey connector in the firewall to the instrument cluster. Also the harness with the larger red charging wire goes under the engine. Check this harness - if the metal retaining clips have lost the rubber inserts this can cut through the harness.
If this harness is bad often all the warning lights will come on intermittently or when it rains.