I had a similar problem and it was in fact the front o2 sensor. Fluctuating idle, near stalls, back fires, flashing cel, surging, etc. Replaced the front o2 and then She purred like a kitten.
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2003 V40 1.9T B4204T4, 197,000miles (sold but alive!), 2004 S60 2.5T, 160,000miles, 2010 V70 3.2, 125,000miles, 2002 V70XC 2.4, 175,000miles
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