K&N filters have wreaked havoc on many engines. They are fine for racing, as the engine gets tossed after a couple races anyway. In road use they cause more trouble than they are worth. They do NOT adequately filter the air unless oiled enough to ruin the air flow sensor (and they only sometimes respond to cleaning). The dirt that goes through once the oil blows off will eat the rings, cylinder walls, and valve seats, although this won't be instantaneous. Under no circumstances are they as good as the factory air filter, ever.

The "cold air intake" kits are worse, resulting in significantly LESS airflow at partial throttle and up.

Unless you burned the valves or something, all you did was toast the mass air flow sensor. The O2 sensor fault is because the computer cannot control the fuel mixture to get the correct response from the sensor.

$2000 ain't a big amount -- if you were talking valves or pistons it would be at least twice that anyway. I'm guessing R&R intake, clean up, new fuel filter, new airflow sensor ($800 if it's a dime) and possibly a new O2 sensor (or two, or four). May need new plugs, too if they got burned by the lean mixture.

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!