One cylinder is low in my 1998 Volvo s90 and the repair shops says the engine needs to be replaced. Is this true>

Not necessarily. I assume you mean that the compression on one cylinder is low? This is generally either the rings/cylinder, or valves. Sometimes a blown headgasket can drop compression, but will generally have other symptoms, ie., blown between one cylinder and another, blown between the cylinder and a cooling or oil passage, etc.

A GOOD shop will check more than compression, to determine where the exact problem is.

*A head gasket blown between 2 cylinders will have low compression on bothe affected cylinders.
*A head gasket blown into an oil or cooling passage will blow bubbles (gasses) into the affected area.
*To check the rings/cylinder, after running the first compression check, put a few ounces of oil into the cylinder through the spark plug hole. Re-run the compression check on that cylinder, and if the compression improves dramatically, you have bad rings on that cylinder.
*To check the valves, you need what is called a pressure differential guage. You place the affected cylinder at TDC (Top Dead Center) on the compression stroke. You then attach the guage, and apply a set amount of air pressure to the cylinder, usually about 100psi. One dial on the gauge reads input pressure (100psi), and the other reads how much the cylinder is actually holding. A drop of more than 10-15% generally indicates a bad valve in the head (as long as the prevoius checks came out OK). To determine which valve is bad, remove the intake ducting and listen for escaping air (Intake Valve) and listen at the tailpipe for the same (exhaust valve).

These are general procedures for tests so that you can see if your mechanic has actually performed them or not. If you want to run the tests yourself, I can give you more specific instructions.

Repairs:
Head Gasket - need to remove the head and check the head and block for cracks. Then replace the gasket and reinstall the head.
Bad Valve(s) - need to remove the head and have the bad valves reground or replaced by a machine shop and then reinstall the head.
Bad Rings/Cylinder - the engine will need to be removed and either machined and rebuilt or replaced.

Again, if you want any more specifics, please ask.

Hope this was helpful!