This should be posted in the turbo forum, but we'll all probably reply anyway.

Yes the police, and especially a smog tech, will know if you remove it. It won't really affect hp much. Most importantly, it is the difference between a very clean running car and one that pollutes like a 1966 Chevelle SS. Plus, you will have a constant check engine light, and your ECU is going to be constantly messing with timing, mixture, etc. trying to figure out how to make that last O2 sensor say what it should. Don't pull it off unless you are running a track-only, non-registered race car. Negatives far outway the couple of ponies you'd gain. Good up and down pipes will do wonders for your car as it is.