I have a 1998 2.0CD V40. Currently on 165,000 miles with no major faults in the 8 years I have owned it. The cars are VERY well built and are based on a joint mitsubishi/ Volvo chassis (the later V50 is Focus based). I do all my own servicing and repair work and can vouch that these cars are VERY well screwed together and use good quality components.
I would echo what has been said that the phase II cars are better (you can tell this as they have a separate reflector for main beam and dipped beam). Though mine is a phase 1 and I am happy with it.
As for not enough space? How much do you need? The wheel arches protrude into the boot, but I have had a 3 seater IKEA sofa in the back of mine so thats enough for me.
I would also avoid the 1.6 engine as its woefully underpowered. Some later models use a mitsubishi GDi petrol engine. These are known to coke up really badly if oil service intervals are skimped on and lots of short journeys and crap fuel are used. However if you get a good GDi then MPG is good.
Spares are not the cheapest, but the quality is great. My car is still on its original exhaust after 13 years. I get major service items from FRF volvo in swansea.
If you want more info then email me or post on here.
Volvo forum good too:
http://www.volvoforums.org.uk/forumdisplay.php?f=17