My '87 22RE 4runner uses a 1 wire o2 sensor.

 

Having a hole in your muffler can affect the sensor as it's introducing more oxygen which the sensor will adjust for. They are pretty sensitve.

 

I have always wondered about this ... does the hole have to be upstream of the sensor? I would assume so but since you specifically mentioned the muffler instead of the exhaust system you have again peaked my curiosity.

 

The hole is downstream of both the cat and the sensor. I will check the voltage at the wire going to the sensor next. Should I do this with the truck running? Thanks for the help so far!

 

There are a few spots where you can introduce extra oxygen into the system to trip a code 21. Leaky gaskets (header to head, header to downpipe, )2 sensor gasket and catalytic converter gaskets) and plain old rusty exhaust.
It's either one of the above or it's your O2 sensor.
Save yourself some trouble and get one with the proper plug on the end. It's an extra couple bucks.
The nuts holding your O2 sensor are probably rusted round. Bring it to a shop with the new O2 sensor and get them to weld in a new section of pipe with a bung in it.
Or get a header kit from trail gear so a little bit more power and bling (more bling than power). There's all the pieces needed and a downpipe with a bung.
Enjoy.