The leather can be removed from the seat and replaced with new leather. On YouTube, you can find how to remove the old leather and install the new one OEM cover. For me, I was planning on buying the seat covers offered by JCSeatCovers, they offer seat covers for the S40 and it looks pretty nice. I haven't ordered the seat covers yet though, but it appears they are good quality. Not sure where to find the OEM replacement cover though, search around.
You can buy full leather exact-fit replacement kits from several online sources, I got mine here. If you keep the customization to a minimum, the cost isn't bad, IMO I think it was around $800 at the time I did mine.
Thanks for the reply's so far, just an FYI my car has T-Tech material that was supposed to be the cats meow, but is nothing more than a stain holder/spreader. They are durable though, the main seat area doesn't look worn at all, it's the cheesy vinyl type material on the bolsters that is cracking.