Makoona
I have just tested the O2 sensor on my MY92 240. It has the LH2.4 Jetronic fuel injection system so it is a three-wire sensor. Locate the connectors (two in my case; one for the two heater wires, one for the signal) at the top right of the firewall in the engine bay. Haynes is pretty explicit on the testing procedure on page 6-5 in the 1995 edition. You will need a pretty sensitive, probably digital, multimeter (MM) capable of reading such small voltages (0.0 to 1.0).
To test the O2 output signal, set the MM to read volts in the required range, connect the +ve probe of the MM to the signal wire and the -ve probe to ground (ie anywhere on the chassis as long as a good earth is made; top strut mount is handy). If the test calls for a reading with the signal wire connected, roll back the rubber cover of the signal connector and probe with +ve from the back. When warm, you should get a reading fluctuating between 0 and 1 volt, centered around 0.5 volts (500mV).
When checking the resistance, polarity is not an issue so just disconnect the two-wire heater connector and connect the +ve and -ve probes of the MM to one of the wires from the sensor and take your readings hot and cold. You are looking for readings of 13 ohms and 3 ohms respectively.
HTH.
Ivan