i plan on changing the fuel filter myself and the maintenance schedule says to change fuel filter and clean water in fuel sensor. i would guess the sensor is somewhere in the filter housing - is this correct? how do you clean the sensor?

 

You are suppose to wipe out the fuel filter housing with a lint free rag. It is tough to get your hand in there. The sensor is a little bit above the bottom.

 

does anyone actually clean there sensor?

 

Yeah, never actually cleaned anything when I replaced the fuel filter on my 04.5. Just opened the yellow lever and drained the canister 1/2 way. Never even changed the rubber O ring either. 330k miles with NO fuel related problems.
Now the new 6.7l is a bit different. Uses a complete spin-off unit that comes with a new sensor.

 

That may be one reason why the fuel filter setup was changed.