If your knee is unstable, the military won't accept you, because they will have to pay for any and all treatment, surgery, rehab, etc.. for you in the (highly likely) event that your knee gives out.
If you think about it, their requirements are necessary, because not only will your bad knee be subject to tremendous stresses during training, but in an actual combat situation your brothers in arms might be severely handicapped were you to suddenly find yourself immobilized and in need of medical evacuation.
They might accept you in some capacity in the event of a true national emergency in which everyone is required to serve militarily even if in support positions.