I have interfaced a crank shaft sensor to an Arduino and a square wave. The VR sensor produces a sine wave as you say, but this generally only has 2 wires connected to it and not 3. You can use the sine wave also, but will probably want to add a schmitt trigger.
You need to know how much current the sensor needs before connecting it directly to the Arduino as you can only provide so much current before damaging the Arduino. If that is not the correct datasheet can you even be sure that the sensor will run off 5V?
Is this sensor not in use by the dyno? The 10k resistor is to make sure that the arduino does not interfere too much with the signal so that the dyno can still dyno can still get a decent signal from the sensor.
I'm not sure how you can confirm which wire is which.