Freon leak and/or evap busted. Common on SVC-70's. Expensive to replace too (figure at least 1200$).
I added some freon to mine. Works for now, but refrigerant pressure is going down each week, which means I have a slow leak, probably from the evap.
Cheapest solution, although not as "green", is to put some freon back in (12$ a bottle). Since your AC is blowing hot air, it means its empty: add the content of 2 bottles. Then monitor your AC pressure (buy a AC gauge) regularly (week to week for instance) and decide if it's worth it for you to change the evap (expensive solution).
If you do change the evap, I recently heard of a secondary fan kit made especially for Volvo AC systems. They were optional on certain cars. A friend of mine has one on his yellow 1995 T5R. If you intend to keep the car, it might be worth it in the long run.
Also, go on the SV-70 forum to ask about this. Same AC system.