If it's what I think it is, don't drive the car.
If there's no heat, and the blower is working, you've got no coolant going into the heater box. And if there's no coolant in the heater box, which is the highest point of the cooling system (on 7's and 9's anyway) it means you are losing coolant somewhere. IF this is the scenario, that annoying cold weather we are experiencing is the only thing between you and a new engine.
I had a similar situation happen on the first cold night of the fall 03. Turned on the heat, the fan worked but no heat coming out. Later that night on the drive home, my engine blew. I mean it was done. Melted a piston, warped the head...the works. Incredible heat builds up when you have no coolant...my electric fan stayed on trying to cool things off until the battery died. I had to install another engine. Turns out there was a hairline crack in the hot-side water jacket of the TD05 turbo. Couldn't see it when it was on the engine because it was on the bottom of the casing, and because the coolant was only escaping during driving (and instantly vaporising from the heat ), there were no drips or leaks showing. And no smell. I suppose it took a few days for the coolant to get to the point where there was no more cooling of the block, but I didn't notice anything wrong. never went under the hood the two days before this happened. No indication from the temp gauge either, which is odd.
Anyway, the Volvo system is designed with this feature; No heat when the fan is blowing means no coolant. I wish they'd put a light on the dash that goes on when the coolant gets low, but for some reason, they felt that it was better to go the way they did...
Don't drive the car until you (or someone) check out where that coolant is going. The alternative can be quite...spendy.
good luck
RS