The knock sensor being disconnected would not effect your base timing - it only generates a signal when something is wrong. Timing is retarded in response to that signal - if there's no signal, timing is not retarded.
The OEM harness has a copper shielding foil wrapped around it, so it's wise to replace it.
As far as crosstalk, I've noted that the Knock sensor leads are wrapped right up to the bulkhead plug (the one over the brake booster,) but I'd have to take one apart to see if it's actually grounded OEM. It should be, but it probably isn't (damn beancounters.)
Yes, it could pick up noise through crosstalk and inductive coupling - not so much from a steady-state charge running through a neighbouring conductor, but from any "surges" that might be running nearby. A surge would induce a momentary change in the magnetic field, which would generate a spurious signal in the Knock sensor leads, which would resut in a retardation of timing.
If you really don't want to run the knock sensor, and you don't plan on installing one, you could just clip the wires from the bulkhead connector and set them aside. If you think you might put a knock sensor back in, it's possible to strip the leads out of the subharness and tie them aside in a coil (which will also help to kill spurious signals - as a sort of "choke.")
Using UTP would probably work as well - it works for 100MBit and Gigabit Ethernet. I've just not tried it myself...