ORIGINAL: RoswellGrey
It was one the original Taurus body shells -- the reasonably good looking one. I THINK it was a police package. I seem to recall reading something at the time that Ford was offering a police package SHO. I don't think they went over too well, though, for police use -- the typical front-wheel drive problems on a pursuit vehicle.
Your right that they did offer a police package back then and they were unpopular for the reasons you listed, but I know for a fact it was not a SHO. Your friend might have been mistaken about it or perhaps they really modified that Crown Vic Police Interceptor big time. The first and second generation SHOs were pretty fast for their day and their price tag. The three generation ones were lame but I don't consider those to be a true SHO (although the engine was purchased from Yamaha, it was nothing other than a V8 made from a 2.5L Duratech).