You don't mention which of the two possible transmitions this volvo has..
The MD2B came with either the MS or the RB type.. The MS will have a small
shift lever on top of the gear case while the RB will have a hulky shift
lever on the side.. Since you mention a dip stick I must assume that this
would be the MS gear..

Since you mentions that nuetral is difficult to find and the engine won't
rev up in neutral, I suspect that internal coupling (#31) between forward
and reverse gears (#15 & #32) is not becoming totally disengaged from both
while in nuetral.. This could be cause by a defect in "the manoevering
mechanism" (shifter) on top of the gear case..

However, most likely, the gear free wheeled or was operated without oil long
enough to gall the coupling (#31). This would require a complete disassembly
and rebuild..

If he doesn't have a manual, there is one on my web site at
http://hood.hctc.com/~esteve/private/manuals/ And he needs a good mechanic
that understand the inter workings of this type of transmision. (this is not
a disk pack type or paragon type). A rebuild will be very expensive, even
here in the US.. It may be cheaper to locate a working used MS transmission
from a Marine Exchange that usually has a couple used MS series in the
back..

Sorry I don't have any better news.

Steve
s/v Good Intentions