Have you tried adding a pull-up resistor of 10K or 4.7K at the Arduino input?
If the sensor PCB has 10K (this is unclear from the specs), then adding an external pullup resistor at the Arduino input should improve the signal as follows:
10K should give up to 2x improved signal strength and rise time.
4.7K should give up to 3x improved signal strength and rise time.
If the signal quality is still too poor to work, adding a transistor (as per Grumpy_Mike) or digital buffer or Schmitt-trigger IC are possibilities (may need some small edits to code to deal with signal inversion). However, at this point it would seem that you have a defective device.