Your O2 sensor came out of catalytic converter (not muffler) because it became old and all rusted out. I'm afraid you need to replace the catalytic converter and buy a new o2 sensor to put in. Depending on how old the whole exhaust system is, you may have to replace the pipes and muffler too, like I did on my altima '95.Total repair came up to $800 including labor. Since the car can run without Rear O2 sensor (the one we are talking about) for now you can just stick it back in and tie with metal wire, but it is only a temporary solution, sooner or later "Check engine" light will come on.
To have an idea about prices go to:
www.maximumautoparts.com
or search for other web sites.
It is cheaper to buy parts online and go to a mechanic for installation, than make repair shop buy parts. And of corse dealership will charge you much more expensive.