I have a 4.7L as well and in the city with very modest driving I get around 10~11 MPG. However on the highway I get almost up to 19 MPG which is not so bad.
Also I'm running the smaller tires (245/70 R17) and I have 3.92 Axle Ratio on a 2002 4x4 Quad Cab Long Bed.
5.7L with 35", I'm not that surprised you are doing 11 MPG. I'm curious as to how you cam about to say you have defective O2 sensors? Is your CEL on? Did you hook-up a Scanner and got some DTC?
Without being defective, O2 sensors can get lazy at one point and really badly influence your MPG. But unless you have read your o2's output and have a near flat line on the readout, and no CEL, I doubt your sensors are cooked or lazy.
What kind of Plugs are you running? The 4.7L and the 5.7L really hate anything other than standard copper core plugs. By far you will get the best results with the original CHAMPIONS. For the 4.7L use Champions 439. I don't know which they are for the 5.7L but switching from Higher end plugs back to standard copper core, I have noticed a huge difference in both MPG and performance.