Alabama ,
If this a LCE engine youhave they know thier stuff,i would try like hell to get that knock sensor working.
And although it seems like it really is no big deal ,with that ecu it needs to hear a certain signal to remain iin closed loop as jason said .
It only retards 4 degrees at a time and then listens for a few seconds and retards again if needed, this happens til it gets to 16 degrees retarded and then it stops .
Only because the ecu in this TCCS toyota system uses that and othe sensors to control timing,otherwise you would be able to do without it. And do manually, like old school,but that engine was a lot of money i would try real hard to make work right if were mine.
Let me know if i can help
gary