The sensor can provide up to 1v output starting at zero volts not .5 volts. As a result a few millivolts is an acceptable reading and the system won't fault it.
Yes, a sensor becomes coated and inoperative if left in a over-rich mixture for extended time. The voltage output should be checked with the engine running and after holding the engine speed to 2000rpms for at least 30 seconds (my own criteria), as it needs top be hot. Without a good heater turned on the O2 sensor won't get hot enough at idle. If you can burn through the crude and get the first reading the sensor will probably clean itself if closed loop can be established.
To test the sensor disconnect from harness and measure the output voltage as one slightly changesthe fuel mixture. If the voltage is low then just a small push on the airflap should bring an instant change to near 1v. Remember that the O2 sensor only reads in the very lean range of mixture probably from 14/1 to 15/1 air/fuel ratios. A really rich mixture only reads the same 1v as does the 14/1 barely rich mixture. In %CO the sensor reads mixtures from 0 to 1% trying to keep the mix about .5% CO.
I diagnosed and repaired a Ferarri with straight K-jet for another shop yesterday and we left the mixture a little lean at around 2.5% CO. It was a seventies model and had no emissions on it. It probably wouldn't run at .5% CO.
Bosch Master, ASE Master, L1
33 years MB technician