If your vehicle is running fine otherwise, it will pass the tailpipe emission test with fine colors even with active P0420 code. The ECU is way too stringent than the federally mandated FTP. I used to have reference paper done by U of Colorado where they actually tail pipe tested cars with P0420 code and all were well within the limit,Some places still do tail pipe with the smog check.
Once the spacer is there, it essentially becomes indistinguishable from the sensor. Heck, they become inseparable even when you want them i.e. when you need to replace the rear O2 sensor (because its heater dies), you will end up having to purchase new spacer.
Yes, if somebody is looking specifically for it, they will be able to spot it but to the causal observer who is only looking for presence of the converter, he will not be able to notice it. Besides, most state inspection only hook up the code reader and call it a day.