Alright, I got my car back today. The guy changed the O2 sensor, but not the lamda tower. Said it now fluctuates between 40%-45%, that the O2 sensor is working nicely. The tech felt it should cure the cold running problem - said that since the sensor was shot, it was giving the full 12V signal during preheating, which could be driving the ECU totally crazy. Once hot, it was functioning on open loop anyway, which was set rich. Didn't do any mixture adjustments - said it was redundant since the O2 sensor would take care of it.
So that's that. I am not a tech guy, so there's not too much I can do myself, so gotto trust someone. I did get him to assure me that there would be no more diagnostic charges for this problem, if it doesn't get solved (they charged me 3 hours labor total!).
Lets see, I have my fingers crossed.
Thanks for all the responses. Will keep you posted on how it goes.