I really am not trying to come off like a jerk so please read this in some other way. Where you cut in your o2 sensor is not going to work, and now you need another manifold.
First, only cylinder #1 will be read. #3,5, and 7 are all down stream of that. It should have been drilled/cut into the exhaust pipe that mounts to that manifold. If you happen to have un-even distribution, or a week cylinder, that system is reading only one cylinder and really needs to read at least 4.
Second, welding on cast iron is difficult. Welding mild steel (the providied bung) is even more tricky. Welding mild steel to cast iron that is as thin as it is in that section of the manifold is in really really tough. I would bet money that after the first few heat cycles, the manifold is going crack.
If it were me, I wound source another manifold. They can be had new from Crown or used on many different AMC and Jeep forums. I would then weld that bung into the y-pipe.
Again, I am just trying to help and not sound like a jerk.
'78 Cherokee Chief: 360/TH400/NOS QT, '04 Grand Cherokee: 4.7/545RFE/242HD w/SYE, JK Rubi front axle, 4.56 gears, Protofab rear bumper/tire carrier