Does the new sensor physically fit, that is, does not hit the far side of the water
jacket before it is tightly in place? If so, go right ahead.
That said, you may be able to find the sensor Volvo
used without spending Volvo parts
prices. Volvo didn't design their own; they took one off the industrial shelf. The same goes for starters, water
pumps, and everything else outside the castings. Their prices are outrageous because they are having to maintain a stock despite very few customers needing a water temperature sensor. Here's what I found by Googling images
of "engine water temperature sensor":