When does an oxygen sensor really need to be replaced?

70K or broken

Usually, I'd only replace an O2 sensor if it was throwing a code telling me specifically to replace it. Then again, you could try clearing out the code and waiting a little bit before starting the car. If the code comes back, swap the sensor...if it doesn't, a piece of carbon probably just smacked into it and made it freak out. Good luck!

PS - Yes, it CAN make a difference in fuel economy. OBDII cars are such a pain...

When a code is read out.

Replacing dead or slow reacting O2 sensors can make a big difference in economy. The readings from the O2 sensors are used in determining the amount of fuel to inject into the engine.

If a code pops up relating to your oxygen sensor then it definately needs replaced.

They have recommended change intervals because after that period they tend to not work as well on average and can start to go out. A lot of times they will last for a lot longer though. If one is actually bad it can affect fuel economy quite a bit.

I doubt it will help with the fuel economy. If you aren't getting a code or your car isn't running poorly, odds are you O2 sensor is fine. If it were bad, and you replaced it, it would probably improve fuel economy, but it should be obvious when you need to change it

Neither. A fouled plug or bad plug wire can give you an O2 code reading. Codes are usually only clues to what is happening. They don't mean "change this part, and everything will be fine". Also, they can be bad enough to affect a car in a pretty noticeable way without setting a code.

The definitive test for an O2 sensor is called a "cross count" reading. You need an ECM interface to do it.