I have an Insteon motion sensor linked to a light switch. Even though I am in the room, the light goes off at the appropriate time, and I have to wave my hands to turn the light on. If set properly, should the sensor detect my presence and reset the timeout counter? If yes, then I suspect i need to increase the sensitivity of the sensor...is that right? Thanks.

The motion sensor options likely need some adjustment.  

 

Sensing mode: checked

On Only mode: unchecked

Night mode: checked

 

Use a Program to turn the SwitchLinc Off 

 

If Control 'motion sensor - Sensor' is switched On

Then

   Wait xx seconds

   Set 'switchlinc' Off

Else

 

The Program turns the switchlinc Off xx seconds after the last motion is sensed.   All motions will be detected with these options.

Thanks.  Will this also turn the lights on when you enter the room?

Yes it will, assuming the motion sensor sees the motion.