This may be a long shot as I have not yet replaced this in my '94 965 but I'll throw it out anyway.

There is a special socket to install the O2 sensor so as to avoid damage to the sensor. I was told be a lead dealer mechanic that the O2 sensor draws air in from a joint around the circumference of the cylindrical case of the sensor and that this is very sensitive to damage. I was told that if that case gets dented or tweaked at all, it can cause an 'out of range' signal as there is not much margin for error in the allowed bounds of the signal from the sensor.

The mechanic showed me a Snap-On socket for this purpose, and it was a something like a very deep 'crows-foot' type of socket that was about 3 inches long.

Hopefully this is not your problem as the O2 sensor is expensive.

Did you use the factory replacement? I know that in some cases a somewhat generic O2 sensor can be used, but I've heard that the configuration on the 960 is a heated O2 sensor that does not lend itself to the substitution of a more generic part.