[ImperialCrown]

Your air intake already is cold air. Why change it? You will find no real advantage.
The O2 sensor (looks like a metal spark plug) is in the exhaust pipe or catalytic converter. The 2-wire black plastic sensor in the intake air stream is an air temperature sensor.

 

[Neurodeliri]

Thanks, that information helps a lot. The plug I'm looking at is the air temperature sensor.

Regarding the filter I would still like to provide a larger filter in its place and am wondering what alternatives there would be to remove/replace the sensor, while removal doesn't exactly seem like an option.

Thanks.

 

[ImperialCrown]

The stock paper air filter already has a huge surface area. More than the engine could ever breathe through at both high speed and full throttle. Just make sure that it's clean.
No real advantage to going to K&N or some other aftermarket filter (it's just all marketing claims anyways).
K&N can actually allow more dirt particles to pass through it which may accelerate engine wear. It is also a very low efficiency filter compared to stock (see link).
Stick with OEM for best results. A lot of research from the car companies went into choosing the best filter for your car under all conditions, even after it gets a little dirty.

http://www.nicoclub.com/archives/kn-vs-oem-filter.html

 

[Neurodeliri]

Thanks a ton your input is really helpful. It's a subject I'm unfamiliar with and anything like that helps.