How much work is it to copy and paste the content of the post from the other forum? Sorry, that just bothers me.

I wasn't aware the Y8 had a knock sensor (I'l have to look closer next time I'm under mine) but if that's the case, your going to have to install it somehow. You may be able to simply insulate it somehow and attach it to the block. I do not think you can simply ground it out, you'll most likely get a CEL from a bad/missing sensor. Hopefully if it's insulated enough, it will simply think it's functioning properly and not seeing any detonation. It also won't protect you if you experience some though, but it doesn't sound like he's going to highly modify his engine, so that should be a minor issue.

As for the CFK (crank fluculation sensor), and OBD II computer needs this. I'm heard the sensor can be added to an OBD I block, but swaping out the oil pumps (where the sensor is actually located). This means pulling the crank pulley and timing belt to get to it though. I can't promise you that will work either (never tried it), just something I've heard. I'm also pretty confident, an OBD II ECU will never turn the CEL light off unless that sensor is installed and working properly.

As for the head gasket, I'm assuming you eyeballed the coolant passages and such and can't see any major differences between the two. I'm also assuming you took a straight edge and made sure the block and head weren't warped. Did you torque the new headgasket, with all new head bolts, in a circular pattern and I believe the spec calls for a 2 step torque (IE 45ft/lbs then again to the 80ft/lbs, those numbers are probably wrong! just off the top of my head).

Solutions? If your not wanting to do all the work to get the knock sensor installed and get the CFK sensor working (I know a few people who have tried using and OBD II oil pump on an OBD I block, but nobodys ever told me it worked perfectly), you might consider using a converstion harness and running an OBD I P28 ECU. It will solve both problems but might not be emissions legal depending on your area. The OBD II diagnostic port won't function without an OBD II ECU so most emissions places will balk right there, but I don't know the specific law in your area, around here, there are no emissions testing at all. As for the head gasket, I'd probably need more info about what happened and what exactly failed (did it break, can you tell where it got past the gasket ...). Good luck with it.