I understand the distrubuter tooth issue very well. The books simply state to make sure the rotor is pointing to the mark for #1 on the edge of the distrubuter. They don't tell you if it's supposed to be the leading edge of the rotor blade, the middle, or the trailing edge. I installed and removed mine a few times debating the question. It could be one tooth or the next. Ultimately I decided to use the leading edge going CCW. This put me in the upper part of the range of the adjustment slot, but that's were the adjustment nut was centered on the mark on the slot.

I was half guessing at the time. But luckily I got it right!

Regarding the wire for the O2 sensor. I found some simular 4 conductor wire made for intercoms. I think it's 18 gauge stranded copper.
Telephone wire may be thinner, but it's solid and I would worry about it breaking. I looked at the wiring diagram. It shows a green wire that looks like it's sheilded, running from the O2 sensor to the control unit.