It must not be shorted then, because despite the "oscillating" (sparking repeatedly upon switching on RCEXL) the engine does run. Have you ever used a grill with a battery powered starter? Not the piezo type. Hold the button down and you get a series of sparks until you let off the button. THAT is what this sounds like, at the plug. I have another sensor I could plug in and see if the same thing happens, after making sure the plug is contacted.

In your "out of the engine" version of the test, I'm still confused by the need for the external added wire you mentioned, going from the plug threads to the engine. Isn't the shroud-shield-ground touching the plug hex sufficient? The engine is floating electrically, so what does it contribute? The sensor isn't grounded to the engine either, so that can't be it. Is that wire just extra "insurance"?