Yes, that is correct. The wbo2 input on the MS ECU is a 0-5v analog input. Technically you only need the white wire since the gauge will be grounded at the car, and the MS will be grounded at the car, but any difference in potential between those ground points will show up as error in your voltage reading. For instance, if the white wire had 4.8v with respect to gauge ground, megasquirt may see 4.6v with respect to the MS ground. So, there would be a .2v difference in potential between your two grounds, which is bad. So, you can avoid that by grounding all MS sensors right to the ECU, which should give them all a near-identical ground reference voltage. It sounds like you did this already, however.

The pinouts I saw in the UGEO manual show the blue wire is serial. That is another way to test the sensor if you'd like.. Find a DB9 female connector:

(Via the manual):
"The BLUE wire from the AEM UEGO Gauge shall be connected to Pin #2 (RX) on the serial port for receiving data.
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Pin # 5 (GND) on the serial port shall be grounded."

Here is the manual: http://forum.aempower.com/forum/index.php?action=dlattach;topic=21559.0;attach=4370

Then you just use Hyperterm to view the serial stream, it will output the AFR. MS won't make use of the serial stream, and it will be slower anyway I imagine, but it could be a good sanity check.