O2 sensor has 3 wires. Black ground, Orange heater voltage, gray is output to ECU.
If there is a poor ground to it or no power, it will stay in open loop.
Have you "indexed" your distributor per my Tip 13?
All the dipstick tube stud grounds on there and touching bare metal and not a ton of nice new paint?
The Renix era XJs and MJs were built with an under-engineered grounding system for the engine/transmission electronics. One problem in particular involves the multiple ground connection at the engine dipstick tube stud. A poor ground here can cause a multitude of driveabililty issues, wasted time, failed emission tests, and wasted money replacing components unnecessarily.
All the components listed below ground at the dipstick tube stud:
Distributor Sync Sensor, TCU main ground, TCU “Shift Point Logic”, Ignition Control Module, Fuel Injectors, ECU main ground (which other engine sensors ground through, including the Oxygen sensor, Knock Sensor, Cruise Control and Transmission Sync signal. All extremely important stuff.