On my jeep 2.5 (naturally aspirated and vaguely economical), the O2 sensor is put right on the exhaust manifold, which is no more than 14 inches from any cylinder, and it seems to last fine.
Granted, my jeep comes stock with a 3 wire heated sensor (heater power, heater ground, actual oxygen signal) and I have a 1 wire sensor on it now (thank goodness for electrical manuals). AND, granted that my sensor is not wideband, as you mentioned.
To answer briogio's question, I can see where you are going with insulating it to keep it warm, and operational faster in engine starts/stops/starts. I would make sure to not block the vents on the sensor. If it breathes through the wires (as I believe most do nowadays) then you should be fine. Making sure you get a good seal on the sensor with a good new gasket and clean/smooth gasket surfaces should help keep the outside air uncontaminated by exhaust (but this whole paragraph is splitting hairs)
Here's a good article for people who want to know a little more in-depth about O2 sensors