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First of all, which "stage 2" chip? There are a myriad of different manufacturers of chips for the 951.
Also, how much boost were you running? Over 15 PSI and it's no real surprise at all that you blew the HG.
As long as she's apart, replace the rod bearings, put a baffle in the oil pan and consider taking some pains to improve the oiling to the rod bearings. The #2 rod bearing is known to starve for oil during extended hard cornering if everything is stock. Might as well have the turbo rebuilt too if you can do that, one of those "while you're in there" kind of things.
Regarding the belt tool: I would either purchase the tool or pay someone else to tension and replace the belts. I've seen lots of people do just fine with the Kricket tool or something similar, but I just don't quite trust it. I've lost a timing belt before (on an old Toyota, thankfully) and to me it's worth the extra assurance to know that the proper tool was used. You can get by with the Kricket, and it will probably work fine, I'm just paranoid.
Suspension and handling: Personal preference. I'm not the guy to ask since I like my cars a little "loose" (oversteer) and tend not to mind drop-throttle oversteer. Most people like the car a little less twitchy than I do.
Regarding the paint: Be careful! The body is fully galvanized and if you go nuts sanding you'll remove all the rust protection. So sanding to bare metal will make the car rust.
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Silver 1998 Volvo S70 T5 <- Daily (Anja)
Guards Red 1986 951 <- Seattle car (Gretchen)
White 1976 914 2.0 F.I. <- Prodigal car, traded away then brought back again (Lorelei)
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