1997 Volvo 850

Yes your guage could not be working right however they normally work or they don't. But overheat is not the only thing that causes head gasket failures. Some times just age or the weather in your area some gaskets just fail. There is a lot of pressure between head and engine a weak spot will surely eventually blow the gasket.

Warpage is definately a possibility some are some aren't. But most technicians will choose to have head machined because they have to guarantee the job and milling the head is just another way of trying to be sure it does not happen again.

Head bolts replaced. This is a required because you have a aluminum head the bolts are stretch to yield bolts. These bolts actually stretch as they are torqued put a new beside a old one and you will see how far they have to stretch. The only way to get the required torque is these special bolts. Hope this helps

Yrs the timeing belt is the life line of the whole engine. This belt connects to the engine and the cylinder head it turns the cams which operate the valves at a precision level as to keep valves from opening at the wrong time and hitting the pistons. This belt has a very hard job there is a lot of torque on this belt. If this belt breaks you coulf be doing the exact same repair that you are now except the added expence of 1000 dollars worth of valves.

So your mech is reccomending everything that any good tech would he is trying to make sure you don't have to do this again.