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yes you need it, i suspect that you might have a cali spec corolla. there were 3 iterations of 7th gen.
fed spec
cali spec
obd2 cali spec
fed spec has one sensor in the exhaust manifold and a cat
cali spec has 2, one in the manifold and one after the cat and i tihnk has 2 cats (one attached to the manifold, its a big bulge)
obd2 has 3 sensors i think, one before the precat, one after the precat and one after the main cat. i know less about the cali spec and the obd2 since mine is a 93 fedspec. iirc the cali and obd2 also have EGR and do not have adjustable timing.
as for the exhaust, just get a bung welded in and put that sensor in. a bung shouldnt cost more than $50 to get it installed by a shop. if you're decatting then you'll need to use the antifouler trick which can be readily found on google.
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