If your timing is adjusted properly and everything else is in working order, 87 octane should be fine in it. Using higher octane gas is neither "better for the engine" or easier on your wallet. If the knock sensor is shorted completely and giving the ECU the signal that it's constantly under heavy knock, it would retard timing for you and not ping anyway.
Try unplugging the knock sensor wiring?
The proper term for the "loop mode" thing is either "open-loop mode" or "closed-loop mode". In open loop mode, the ECU relies on a pre-set map of values for the engine to run on. Very baseline, not adapted for fuel economy or power. It will simply keep the engine running and not change the preset values according to any sensors. The engine runs in open-loop mode at idle, at full throttle, and at several other pre-determined points, depending on the input it recieves from all the sensors.
Closed loop mode is where the pre-set map is not used and the ECU instead relies on input from many sensors on the engine to tell it where the crank/cams are, where the ignition timing is/should be, how much throttle is being given, how much fuel is needed and how fast the engine AND drivetrain are moving.
As you can see, it is a necessity for all the appropriate sensors to be completely functional for the engine to run right all the time with 100% efficiency. Troubleshooting is the hard part...