well, I am unfamiliar with the LS1M but I would imagine if it was to follow any sense (~shrug~) I would think that the O2LR would be the rear one (hence the R).
now, the cycling you are seeing is normal. Especially from the forward O2. the O2 measures the oxygen in the exhaust which is always changing, it then sends a signal to the PCM which will compensate with more or less fuel depending on what the sensor reads to try and keep a Stoich mixture (14.7:1 A/F ration or about .45mv read on the sensor). this is always changing rapidly in the struggle to meet that mixture, so the rapid cycling you are seeing is normal. At WOT, the system will go into "open loop" and then you should see readings that are nearly stable in the .870 - .940 mv range. These values are what are considered "normal" or what most of us strive for. Higher than .940 is considered rich and less than .870 is considered lean.
The rear O2 should be reading something close to stoich (.45mv) and should be fairly stable around that number since the CAT is supposed to "clean" the exhaust. You will still see some fluctuation but it should not be as much as the forward O2.
the rear O2 is there mostly to tell the PCM if the cat is working or not but I have proved that the PCM will compensate the fuel tables if that sensor is missing or not working correctly.
I am not sure how the O2 sims work. I dont know if they send a dedicated mv reading to the PCM (such as .55mv) constantly or if they are designed to fluctuate the reading like a real O2 would...
So, to summarize:
at anything other than WOT, you should see fluctuating O2 levels.
at WOT, the numbers should be nearly stable.
HTH
Chrys