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87 4KQ engine problems

My 4KQ which used to run perfectly has suddenly developed a problem.
Yesterday morning it started quickly (as usual) but instead of the
smooth hum of the inline-5, I noticed a huge plume of blackish smoke
from the tail pipe, plus what seemed like an inline-3 under the hood.
The idle is now erratic, the exhaust is black and smells of gas and the
spark plugs are sooty. I guess it's running very rich. On the highway,
things seem to improve - the engine is much smoother and there is no
apparent loss of power or pick-up, except occasionally it feels like it
cuts out for a fraction of a second.

The air filter is not blocked, the distributer cap and rotor are new and
the plugs *were* OK before they got fouled. I can see no vacuum hose
problems and I have tested the cold-start injector for leaks. However,
the problem did surface only a couple of days after I foolishly let the
exhaust system hang from the O2 sensor wires while changing the
cat/downpipe flange seal.

I am running out of ideas. Could it be an O2 sensor problem? Does anyone
has any suggestions?

Craig Parkin
1987 4KQ 236,000km
black with black clouds trailing