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OK, you've said that you had codes some time ago concerning ignition coil feedback circuit and multiple cylinder misfire. I find it wierd that a plug changed alone fixed that, but whatever. I would have thought, with those codes, you would have had a distributor or coil problem, something common to all cylinders. I've seen bad coils do all sorts of wierd things to cars, including screw up the radio (go figure). I don't know if a bad coil could cause knock though.
As to rings and valves, you've said you are already burning oil. There's only two possible causes for that, bad valves (specifically valve guides and/or stem seals) or blown rings. How many miles are on the car? If it's less than 150K I'd say its pretty unusual to see bad valves or rings in an 850 with only that much mileage. As problem prone as these cars are, the main engine internals do seem to be pretty bulletproof. You never see posts of people with thrown rods, spun bearings, or the like. I would say the oil burning is probably due to bad valves before I would suspect rings. The odds are higher valve guides and stem seals will go before rings. However, I don't think either of these would cause knock. If anything, they would do the opposite, since bad rings and valves will eventually cause a drop in compression, not raise it. I guess if the oil burning was bad enough you could have the entire face of the piston and the bottom of the head covered with varnish and baked oil residue, and maybe that could cause some knock, I don't know.
I'm not familiar with the product you mentioned for removing combustion chamber deposits, so I can't say if it has an effect or not. The old school technique for removing cabon buildup in carburated engines is to pour water down the carb throat very slowly and let it vaporize in the intake stream, then take the car out and give it an Italian tuneup. Water breaks up carbon deposits very well. My 1973 Triumph TR6 manual actually lists cylinder head removal for carbon deposit cleaning as part of the 60K mile service. Anyway, this doesn't apply to a modern car though, I'm just rambling. Sorry I couldn't give you any better answers.
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