Okay after failing smog horribly, I have to decide wether or not I should take it in to Volvo for a diagnostic. They want 130-150.00. The ecu is'nt showing any faults and wether or not Volvo finds the problem I get nailed for 150 bucks. I don't mind doing the work, but I need to be sure that either my O2 is bad or the cat is bad. Any ideas?

There are many reasons that emmisions will exceed specifications.
You are corect that either your O2 sensor or Cat may be faulty but without a diagnosis anyone would just be guessing at what the problem is. Unfortunatly most of us do not have the diagnostic equipment so paying Volvo to diagnose the source of the problem may actually save you money over the replace and try method.

Good luck