I have owned the 2001 S40 for about a year and a half. Contrary to many of the other reviews (many of which pertain to the 2000 model anyway, which I know had more issues), I haven't had any service problems with mine, aside from the "Check Engine" light coming on once. The car handles well, and the engine is powerful (though my previous car was a V6 and I do miss the V6 a bit). My only complaint would be the that the interior controls (climate and radio) are poorly designed.
Improve the climate and radio controls, update the exterior a bit to look more modern.