One problem related to transfer case has been reported for the 2001 Volvo XC70. The most recently reported issues are listed below.
While backing up and stopping, I heard a "thunk" from under the car. Proceeding, there was a new noise, which I checked out. The right angle drive no longer powered the rear wheels, and I was advised to replace it, at a cost of about $1,300. When the garage took the old drive off, they found that the splined shaft between the right angle drive and the transmission was stripped of its splines, and the mating part on the transmission was likewise stripped. Verdict: needs new transmission, too. I got a Volvo rebuilt transmission and right angle drive, total cost $6,100. The Volvo dealer indicated that this problem was not an isolated problem. Because the car had 90,000 miles, it was out of warranty. Volvo and the dealer refused to help at all-tough luck! it is definitely a design and manufacturing problem. Volvo acted as if any problem out of warranty was mine. I feel that a recurring problem like this, with such a huge cost, should be covered, out of concern for Volvo's and Ford's reputation, and the resale market for people considering buying new Volvos.