I thought I had posted a response to you yesterday, but I don't see it here for some reason.
I drive the same MY '97 850 as you do. The AW 4-speed by that model year is pretty much bulletproof. It does not necessarily need the benefit of an external cooler as much as some other more marginal designs might. I don't know what the poster with "Volvos are brutal on tranny fluid" bases his comment on. We're bumping over 185k on ours and it still shifts like a brand new one.
While an aux cooler is always nice and will certainly give you longer change intervals on any fluid, it isn't necessary here if you're not towing and you regularly change (every 20-25k) with a premium fluid exceeding the old Dexron III spec. Dex III is not a very impressive standard, and you can do much better today. The improved fluid technology can help you as much as standard Dex III with a cooler will.
I recommend the new Dex VI fluid, which we run in our '97. Besides vastly improved oxidation resistance, it even shifts better than M1 had in it. Otherwise, all the top full synthetic universal fluids from M1, Amsoil and RL are fine choices and easily can put up with your Houston heat and driving conditions. Just change it at prudent intervals.
IPD sells a simple change kit, so you can flush out the tranny easily on a regular basis. Dumping in 6oz of ARX about 1500 miles before each changeout is also a nice preventive step in keeping down any deposit buildups (which should be minimal at those intervals with those fluids).
Just bear in mind that heat doesn't directly kill the transmission. It wears down the fluid's ability to do its job. It is that burned out, oxidized fluid that eventually kills the unit. Either improving the fluid or installing a cooler will both increase the thermal endurance of the fluid charge. The former is enough with your 850, which was designed for long life around a humble Dex III fluid to begin with, and I wouldn't lose any sleep over it.
