sounds to me like you have a vacuum leak. The two 02 sensor codes would lead me to believe that the sensor is reading off and has gone beyond it's range. The knock sensor fault would make sense with the 02 sensor codes because with the lean condition from the vacuum leak you are getting spark knock/detonation/pinging. Check all rubber intake boots for cracks and splits top and bottom as well as a secure connection.
As far as your description about the check engine light in relation to the M and S switch, I was suspecting either a faulty switch or more likely coke or other debris within the switch. The other possibility could be the gear selector switch. However, you mentioned no faults for the transmission. Therefore I suspect that the difference in M and S is putting a different load on the engine which affects the lean condition/02 sensors and knocking issue.
The burning smell is most likely not related, although there could be a correlation. However, I would suspect that you either have an oil leak, plastic bag or something on the exhaust or some insulation from the bottom of the floor pan has fallen down and rubbing against the driveshaft/flex coupler.
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