The knock sensor doesn't often malfunction but it's operation is often misunderstood.
The knock sensor simply listens for noise in a certain frequency range and when it records that noise, it looks at how loud that noise is. If it's louder than a certain threshold, it starts to pull timing. The noise that is heard from knock is also present in normal combustion, but at a lower volume. Ford dialed all this in for a factory engine at factory boost levels. Increasing boost and therefore cylinder pressure increases combustion noise of all frequency levels. Since the knock sensor is tuned to one specific frequency, it is possible to trigger the knock sensor when knock isn't actually present. The trick is knowing if you have knock or not. On a stock engine you can normally count on the knock sensor to be pretty accurate up to a certain boost level. But there does come a point when it can't be relied on anymore. Knowing where that is, is the trick.
On a motor with ported heads and cam, that point is increased. With stock heads due to some of the design the engine won't tolerate much timing so you have to be careful. On a modified engine you might get away with running 19psi and 26 deg timing - and make good power too. But on a stock motor 26 deg and 19 psi will just break rings. For example, my current ride is internally stock and at 20psi I'm running 16 deg on top. It makes 280rwhp so you know it's not a slouch but I can't run 26 deg, it would just blow crap up.
