1989 560sel will only idle after heatup. Help!

[Earlybird]

I bought this Black on Black 560sel that had a head replacement that blew a gasket. I had an extra 560 so I swaped it (just the long block). I put in a new O2 sensor and water temp sensor. The car starts and runs good until it is up to running temp. Then it drops the idle from 10K to about 700 RPM and will not move up from 700. During this period, the engine light does not come on. If I unplug the O2 sensor, The engine light comes on and it runs just fine except for a high idle and probably bad fuel economy. I have herd of this happening to other good running Mercedes all of a sudden but I can't find anything in our forum that documents this problem or a root cause. The online manual I use is unclear as to how I can check my O2 sensor. Does anyone have any insight before I start throwing parts at it?