You assume correctly. When operating correctly the red power LED3 is off during sleep mode. I just retested with my sensor disconnected and works properly with myserial.begin(9600) active. Therefor my problem seems to be when the sensor is connected and returning data.
I need to do a bit more trouble shooting. The objective is to wake the mayfly, turn on the sensor and let it collect n samples of data (1 per second) then go to sleep. A possible related problem is that the tx pin (10) needs to be set low when in sleep mode otherwise it feeds Vcc to the sensor.
I’ll report back after some further testing.