I would do a couple oil changes in quick succesion to see if your problem clears up. While blue smoke is usually bad rings or valve guides, if the engine is running well I would suggest that you run it a full speed (at the max rpms recommended in the manual) under load for perhaps an hour. Often after diesels sit they just need to be run hard to clean them out. I would also get fresh fuel and run diesel injector cleaner through the next tank of fuel.
Volvos tend to be pretty reliable and rebuildable but the parts are expensive. Unless you are doing extended cruising in a remote area, I would continue to use the Volvo at least until it starts giving you more trouble than simply smoking. The water in the crankcase may simply be condensation from 10 years of sitting.