The O2 sensor will fail, if the engine runs an overly rich mixture of fuel, which leads to excessive emissions and hence the contamination of the sensor. However, if the CNG kit is tuned properly, you can save the sensor from damage. Moreover, if you plan to run the engine on a closed loop kit, it will have its own O2 sensor and will adjust the fuell mixture ased upon feedback in te exhaust.
O2 sensor failure is more prominent in open loop systems, where air-fuel mixture is adjusted manually and the correct mixture is never obtained easily. However, I feel this can be avoided with a closed loop or a sequential kit.
Coming to the difference between a Closed loop kit and a Sequential kit, its more like a carburetted car and a Fuel injected(MPFi) car. If you are not worried about performance loss, then a closed loop kit is sufficient enough. However, a sequential kit will be better both in terms of performance as well as economy. Only the initial cost and the skill required is higher in the case of a SGI kit.
Where there is a wheel, there is a way!
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