[Andrew (UK)]

>What should I check or replace before using it as a daily
>runner?

That depends upon what you want out of the car.

>I was going to give it a full service, change the timing
>belt (how difficult is this, any tips?), and water pump
>(slight leak).

All good things to do. The timing belt is not hard.
I would add a brake fluid change, vacuum hoses, PCV system service (flame trap and associated hoses) and coolant change as well (but you would do this with the water pump anyway). Check the dash pot oil in the carburettor.
The PCV system is very important because if it is clogged you run the risk of blowing the oil seals out of the engine and creating large oil leaks.

Bushings and shocks can be renewed to return handling to like new if the finances permit, but is probably beyond what is needed for a run around.

>How do I service the automatic transmission?

Change the fluid completely, this involves undoing the coolant return line at the radiator and using the idle of the engine to pump fluid out, then top up and repeat until clean fluid is pumped out. Before you start you can drop the oil pan and clean or change the screen if you are feeling particularly dedicated and have a new gasket. While a lot of fluid will be drained this way, there is still a lot in the torque converter hence the procedure needed above.

>Also, should this engine be running on unleaded as the
>garage has been doing so for the past year?

As long as it is not pinging then unleaded is fine, the head already has hardened valve seats in it. This is contrary to Volvo's printed advice by the way.