Am I correct, once the engine has been tuned using a wideband lambda sensor and controller they can be removed and a bung fitted?

If yes what should be set in the MegaSquirt in the Exhaust gas settings/Ego sensor type.
You get a choice of wideband sensor or narrow band sensor.

Or is it better to replace the wideband sensor with a narrow band one and change the settings accordingly?

I'd be tempted to fit a narrowband in it's place just because, but if you do want to remove the O2 sensor altogether then just set the 'active above RPM' setting in the EGO settings to a silly high number that your engine won't ever see.

You can remove it by why bother.

I leave mine in running closed loop with a target AFR table so I get the best of economy during cruise and rich for top end power.

This will be very difficult without the WB fitted.

I agree, why bother?

If your engine are destroying your lambda then you have something wrong in your engine.
And a NB is almost as expensive as an WB(at least here in sweden)

I plan to leave mine on with the automatic mixture control turned on to let it fine tune the map itself.