While I can not help you with how to tell if your sensor is bad I can help you with replacement procedure as I just did this 2x weeks ago with my '91 740(same engine). By the way I knew my sensor was bad because it effected my idle(was way too high). Without having to remove the intake manifold I used a long extension(about a foot long or more)on my socket wrench. Preferably one with a swivel fitting. You have to use a deep socket as connector gets in way. 19mm or 3/4" . I unplugged any hoses & lines that were in way to get easier acess and visability. Removing and reconnecting the connector is a pain but you have already been there I see so are familiar. Long screwdriver helps to depress connector clip and to pry off & push on connector. This job took all of about 45 " time. Oh yeah forgot to mention very first thing to do is drain out a little coolant as otherwise it will leak out when sensor is removed. Hope any of this helps.
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' 91 740 sedan nearly 157,000 and ' 87 240DL auto nearly 135,000