Hi Spectre. I have no experience with MP3's in my car (or my house actually), so can't answer that one unfortunately.
However I would recommend getting a couple of Car Audio mags and looking to see which units get a good review. MP3 players are all the rage right now and reviews are easy to come by.
Souping up the sound? I would get a new set of 4 speakers which fit your Volvo. Don't go mad with power ratings, look to quality products like Alpine, Boston or Rockford. For a bit less money, you can't go wrong with Pioneer IMO. Then I suggest a nice 4 channel amp running off the preouts on the H/unit. Even 50w x 4 headunits struggle when the volume is wound up. Amps such as the Pioneer GMX574 (50wx4) is a good starting point at around £160. BIG improvement over the h/unit on it's own. It will go a bit louder, but will keep control long after the player has distorted.
Connection-wise, most cars are similar (not identical) so best bet is to choose a h/unit, then find out what sort of adapter you (might) need for Volvo 850 - they are around £20.
See
www.caraudiodirect.co.uk for a large selection of what is out there.
