Normally it just pulls off, might have to tap it to free it up, might break the rotor but wont hurt the distributor, so shouldn't matter when replacing the rotor. Rust on the shaft can lead to this.
Should just be plug and play. Any LH 2.2 ECU should work, even one from an 700 series, as long as it's not for an V6 engine.
I'm using an LH2.4 ECU in my '92 240 that came from an '94 940 non turbo, made a big difference in throttle response and economy, next I hope to try an 012 amm to see if that does anything.
'86 was the worst year ever for Volvo's, '87 was the next in line, especially for electrical issues. Odds are you have some sort of wiring harness failure out in the engine compartment, either from bio degradable insulation where the insulation on individual wires literally just crumbles away, or much less likely, the car may have been in an accident where the harness was damaged where it can't be seen easily.
I'd start by examining the harness for signs of rot, then move on to testing the harness. You may have to unplug the entire harness and test it for integrity, I'd start with the right side, unplug everything connected to it in the engine compartment, then the main plug up under the right corner of the dash, then check at that plug for continuity between any of the terminals, which would indicate an fault/short. Most likely you will need a factory wiring diagram book to accomplish this, I don't have one for this year, though blarf has one on this page for an '88: http://blarf.homeip....lery/simplelist
scroll down to TP 31075/1
however '88 was a major redesign, so may not be of much use. Not sure if you can still buy the book from Volvo, but if so it would be around 30$, otherwise you might ask over at turbobricks.com, odds are someone there will be able to help you out with an pdf file. While your are there you might as if the dropbox.com files are still available and if there is an update to the user name/password, see:http://www.brickboard.com/FAQ/700-900/ElectricalCircuitsRelays.htm#WiringDiagramsWebsite
It's not really hard at all to replace the harness sections, might be hard to find a suitable donor, but otherwise with some basic skills and a bit of time almost any harness can be repaired/rebuilt. If it might be relevant in the search, if the engine dies where the tachometer drops like a stone, the ignition is being cut; otherwise if the tach stays with the engine speed as it drops off, it will be the fuel system.