It should be in the exhaust manifold, just upward of the collector flange. Given that you have an OBD-I XJ, you'll want to check to see if there is one or more near the catalytic converter (I'm sure they're on OBD-II, but I'd have to check for OBD-I. All my XJ's are RENIX...)
It helps to remove the sensor while everything is still warm, and make sure the threads on the new HEGO sensor are liberally coated with Never-Seez (I usually add some copper-based stuff that I keep around for high-temperature applications anyhow...)
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