Ah, this is relevant to my interests. I daily drive a '90 245, powered by the same utilitarian B230F that yours is, but mine is a 5 spd.
Now that I've sorted out most of the issues, it is fairly reliable and actually surprisingly good on has for it's age/size/weight.
For me, since it's not my "fun" car, I try not to spend any money on it, but here it sits, lowered, on Bilstein HDs, aftermarket supension bits everywhere, with a set of BBS RSs waiting to go on and a K cam waiting to go in when I change the timing belt.
Have you looked in to a 16 valve conversion? I had tossed around the V8 idea forever, but I think a junkyard built 16 valve turbo engine may be significantly easier to execute, especially since I drive it daily and can't afford huge amounts of downtime.
If you haven't found it yet: http://forums.turbobricks.com/
Start with "Phase Zero" (make it reliable) and mod up from there. Having had two RWD Turbo Volvo wagons with automatics I'll say that while fairly easy the manual swap wouldn't be first on my list. Turbo it first and then see how the trans holds. Of course if you happen across a complete manual transmission car you can grab all the swap parts for then go for it! My pull-A-Part complete conversions all ran me about $350 plus a new clutch. Remember the 4 speed+overdrive is stronger than the regular 5 speed.
A word about your seats: the junk yard is your friend here. Luckily you have a blue interior. While the blue leather often looks like yours, the blue cloth wears like iron. I've seen cars that look like they've spent 10 years at the bottom of the ocean being dragged behind a submarine with pristine blue cloth seats. Make a deal at the counter before you grab them and you can probably get all three rows for $100. In fact this would probably be the first thing I fixed, but then I'm a bit off. 
