Ack, my post got highjacked
We are still having the same problem. I realize it has been some time, but we have since removed the mixing elbow (suspecting a clog but there wasn't one), the heat exchanger (the end boots were leaking some, so replacing), the fresh water pump (was corroded, we are replacing) and the alternator (got the brushes and bearings cleaned). There are some bubbles in the fuel return line.... Here is what we have done so far:
replaced all fuel line hoses and clamps
removed and replaced original fuel shut off valve
switched the pick up tube with the return tube (just in case the pick up tube was an issue, even though we pressure tested it)
brand new racor filter and full unit
brand new volvo fuel filter
The engine starts no problem but it drops huge in RPM if you give it throttle