My wife has a '97 323 1.3 LXi 3 door, 96,000 miles. For the last three years it has struggled to pass the emmisions part of the annual UK "MOT" test. Each year the tester has said he has had to run an increasing number of cycles before it passed the emisions test, and this year it falied the emissions test due to running too rich. It has new plugs and air filter. The car is basically sound and my wife adores it and wants to keep it running if it is at all financially viable to fix it. Where should I start to try and rectify the problem? I am reluctant to start by replacing the lambda sensor because it costs so much, but is that where I should start?

 

I suggest start by cleaning the lambda sensor (=MAF sensor). Use CRC MAF sensor or another dedicated MAF sensor cleaner. Don't touch the sensor wires with anything but the spray from the sensor cleaner.
Use 4 L of Lacquer Thinner (NOT PAINT THINNER!) to one half full tank of gas and drive about 100 miles with a few nice accelerations mixed in. The solvent will do a nice cleaning job to the whole engine and catalytic converters.
Check the fuel pressure regulator. If the membrane has ruptured additional gas goes into the intake manifold enriching the fuel air mix. Take the vacuum hose off and check it for fuel and fuel odor.
Check the ignition parts. Plugs, wires, distributor cap and rotor. Or replace these if they haven't been replaced for some time. A percentage of misfires will send extra fuel to the O2 sensors.
Replace the PCV valve.