'90 300E 110,000 miles

Hi guys, I just installed a new coil, rotor, distributor cap and wires. After some initial misfire which seems to have cleared up after some driving, the car seems fine. When I try to read duty cycle, however, I don't get a reading. With the engine off but key on I get a steady 51.1% which indicates oxygen sensor failure, correct?
When I switch the car on, the initial reading fluctuates about 50% but then after about 4 mins. jumps to about 85 then 95 then 103.0, where it remains steady. Unplugging the oxygen sensor doesn't seem to make a difference. Thick smoke also pours from the back of the car but it's hard to tell what colour it is under fluorescent lighting. It looks light gray and gets thicker when I accelerate.

Any ideas? Is the O2 sensor a likely culprit?

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With Regards