Does the knock sensor pigtail ground wire (shielding) attach to the engine block in any way? There are two wires from the pigtail connector: one goes to the knock sensor pin and the other is the shielding. Does the shielding connect to anything at the end or does it just run to the end of the pigtail (near the knock sensor) and stop?

 

It should be grounded internally to the knock sensor & the wiring harness on the other end.

 

Do you mean that when you plug it into the knock sensor it makes a contact from both wires (inner wire and outer shielding)? And, then the knock sensor threading into the block complete the ground?

 

That would be the common wiring for an outer shielded wire.

 

Yes, that's exactly what it does(most of the time, if anything, much like a coax cable for your tv in construction). It does not connect to the sensor or block. So it's a shielding, NOT a ground, wire (mainly). There's a distinction between the two, and/or those that are both. In this case we are talking about the E1(engine ground) and E2(sensor ground) circuits. This sensor wire is shielded it's entire length, but the shielding is only connected to the E2(Sensor common ground to ECU) circuit at the ECU wiring harness end.

However, I believe the design isn't necessarily intended for shielding purposes though, but rather in case the sensor wire breaks. That way it would atleast have a chance of grounding itself to E2(possibly semi-permanently), and not continually arcing on the other wire stub and/or the engine block/E1 circuit.
The KS is the variable-voltage signal source, not the ECU. So that signal doesn't need a return path to it's source. Hence there's no real need for a sensor ground(E2) wire to it(most of the time).