I have a 96 328 as well and my sensor in bank #2 has also failed. The dealer told me that bank #2 is the right side or passenger side of the vehicle. Only one small problem. There are 4 oxygen sensors on the 328's; 1 on the left before the cat, 1 on the left after the cat, 1 on the right before the cat and 1 on the right after the cat. I was able to squeeze a little more info from the dealer and they told me it was the one before the cat.
You can use the trial and error approach like you mentioned but you'll find that those sensors aren't the easiest to access and they are sometimes tough to remove. But here are a few tips:
1) Spray WD-40 or some kind of penetrant to help loosen the sensor. MAKE SURE THE CAR HAS COOLED DOWN COMPLETELY. THE PENETRANT IS FLAMABLE AND YOU DON'T WANT TO BE STARTING A FIRE UNDER YOUR CAR.
2) Give the penetrant some time to soak in and try to remove the sensor with a cresant wrench. I heard that a socket is better but I don't know how the hell you would get that in there. If it doens't loosen then let the car run for a few minutes and try again. The heat may make it easier. BUT MAKE SURE YOU WIPE UP ANY OF THE PENETRANT YOU SPRAYED, LIKE I SAID IT'S FLAMABLE.
3) When you install the new sensor make sure to put some anti seize on the threads so that it will be easier to remove next time.
That's about it, I did remove my old sensor but I had to put it back in because I got to the dealer to late to buy another one. I know, that was just stupid on my part.
<img src='http://www.geocities.com/royb9t8/MY_BMW_2.jpg' border='0' alt='user posted image' />
<span style='color:blue'>My ass may be dumb, but I ain't no dumb ass!</span>