No matter how tight I tighten up my trans temp sensor it will not stop leaking. Since I need my sensor to be grounded can I use Teflon sealant on the threads and still retain a good enough ground?

Apparently sealant with Teflon it is does not affect the ground. I used this and am having no grounding issues.

the teflon will kind of wear away when you thread it together so you will still get a good connection through the threads

And you'd think an NPT fitting wouldn't leak.
The more I tightened it, the more it leaked.

Are you using compression fittings ?

Double flared for the lines into my distribution block and NPT on the D block for the sensor.

thats weird that its ot sealing. I dont know what kind of sensors your using but my autometer sensors ground themselves.

Nordskog gauge and sensor. The sensor grounds itself as well. I thought it was weird as well. Oh well. So far it hasn't leaked and it appears as if the ground is still intact.

if all else fails use pipe dope, teflen tape is crap

I used teflon sealant not tape. The tape IS crap.