I had this exact same thing happen to me on a 22re. It turned out to be the knock sensor itself wasn't threaded in tight enough to the block and would vibrate a bit or maybe create a poor ground when the vibration from driving kicked in and the light would come on. 1/4 turn more and no more light. Might be the problem.
If you think the advanced timing is the issue, turn er back a few degrees and see if the problem persists.
Loose, brittle wire would be the problem only if not enough wire to carry the signal or it was shorting/grounding out somewhere along the way. Splice a chunk of new wire in there and be done with it.