Just as you figured, the paper on the sensing tip of the sensor is used to set proper operating distance between sensor and the tone ring. You just leave it on the sensor, press the sensor against the tone ring (as far in as it will go) and tighten the adjustment bolt. Once running, the paper comes off and dissolves, getting sent to the oil filter
If you feel that the cam sensor was installed properly (and paper "dot" in place), we need to check cam sensor circuit voltages next.
There will be three wire colors at the cam sensor: Orange (9v power feed), tan/ yellow (cam sensor signal) and black/ light blue (sensor ground).
With your meter set to the 20v DC scale, connect the black test lead to battery negative. Then disconnect the cam sensor connector and test for voltages on the three wires (key on).
The orange wire will test out at about 8.8 volts normally, but may be slightly different from this and still be OK.
The tan/ yellow wire should show a solid 5.0v although it may vary by a small amount as well, reading between 4.9v and 5.2 volts.
Sensor ground (black/ light blue) should have zero volts present, although a few stray HUNDREDTHS of a volt are OK. Switching your meter to the 200
ohm scale, test between battery negative and this sensor ground wire, which will typically show about 30 ohms of resistance. Less resistance is OK, but more resistance (higher ohm count) could be trouble.
If these three circuits check OK, reconnect the sensor and probe the tan/ yellow wire with your meter set to 20v DC.
The sense circuit works on a 0v-5v matrix, alternately showing one voltage state or the other, depending upon what position the engine sits at the moment. When the cam sensor switches OFF, it allows the 5v pull-up voltage present on the circuit to remain at five volts. Switching the cam sensor ON grounds the signal voltage and drops it to 0v if things work right.
Rotating the engine slowly while watching sensor output will tell you if it's working right OR possibly whether the timing chain has broken.
You should see occasional switches from 0v to 5v and back as the engine rotates the tone ring (cam gear) past the sensor. Switching from 1v to 4v isn't acceptable... it needs to be very near this full 5v-0v matrix for the PCM to recognize the signal state change.
If no change is seen, either remove the cam sensor or dig the old one out. Connect this sensor to the harness and pass a metal object past the sensing tip of the sensor. This should provoke a switch in state from 5v to 0v. If it works outside the engine-- but not when installed-- you may have a broken timing chain.
I'll stop there for now and let you get caught up. Talk in a bit,