[ravenmaster]

Hmm this is interesting and what surprises me is noone told you to look at the tsrw or the Haynes guide. What I have been able to gather from what I have read and from talking to several of the guys at my club last night it might be the following:
1. Ignition Timing Incorrect
2. Spark Plug(s) have become faulty or incorrectly gapped, This was one of the things everyone agreed on that is part of the problem. While your at it check the wires.
3. Distributer Cap, take it off and check it for cracks, holes, whatever.
4. Vacuum Leak in the exhaust manifold.
5. Your ECU <- the other -popular answer
My opinion:
Since the -problem came and then suddenly stopped worries me. Toyota's just don't do that unless a serious problem is coming up. I am going on a limb here but I take it that you didn't actually do anything to the knock sensor except for pulling the negative cable off the battery. The fact that the error did came back shows one of two things, and either way I would rep-lace the knock sensor(s) anyway as well as the wiring to the ecu, and in answer to your question a faulty knock sensor can/will have an im-pact on your performance eventually.
Anyway Here is what I believ to be wrong:
1. The wiring between your knock sensor and the ecu is bad/going bad and is fluctuating in its connection hence the knock sensor warning turned off and has stayed off.
2. Your ECU is bad, This would explain the knock sensor re-port as well as the bucking jumping -problem.

Basically go print out/buy the TSRM AND the Haynes Manual. And then check all the stuff mentioned here. I suggest picking up a OHM Meter and a Voltometer too. Its amazing what those things can do.