Scotty,
I'm not putting you off or anything, but a quick Google on M42 knock sensor came up with some interesting results. The ones I read stated that replacing the sensor didn't do any good. Most of them were repaired by cleaning electrical connections, ranging from soldering the ECU (reflow) to cleaning the neg battery terminal under the hood while replacing the starter to fix a different problem.
I think investigating electrical connections for loose or corroded terminals would be the best place to start.
The knock sensor is located underneath the lower intake manifold, but the ECU picks up signals based on what it sees, maybe it's just a connector problem.
Just so you know, at least on the E30 M42, there's a plethera of vent hoses underneath the intake manifold that is integrated into the cooling system to prevent the throttle body from icing up in the winter time. This area is prone to heating and cooling cycles and the plastic connectors located in this area tend to get brittle and crack even after 40k mile replacement.
At least it's a place to start without throwing money and parts at the problem right away.
Hope this helps,
JR