Once I had the same problem (about 3 1/2 years ago), O2 light worked normally. But kept failing the NYC emission testing, even after new wires, rotor, sparkplugs and distributor cap.
I paid an extra "fee" to have them pass it for me.
I was getting very bad performance, (like 13 MPG) and had to take out the sparkplugs weekly for cleaning (black soot all over them).
Guess what?
The O2 sensor light turned on about 2 months later. Changed the O2 sensor, and VOILA!! perfect emissions testing every year since (you can find my latest results doing a search).
All this happened before I knew about this forum.
So take the advice, do a search on how to test the O2 sensor and if it fails the test, REPLACE IT!!!

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1999 Porsche 996 Carrera Convertible
1994 420E - SOLD
1986 300E - SOLD, what a car
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