I do power lifting, and had significant problems with my squats until I spent a few weeks practicing asian squats and generally improving my hip mobility. I still can't stay in a squat position nearly as long as my four year old son, but it's been steadily improving.

When I started squatting, my knees were so weak I couldn't walk up a flight of stairs without pain. I finally started exercising because my doctor gave me a look of disdain, handed me a sheet of basic exercises and told me to get out (edit: when I went to her to ask about my knee pain...)

I'm not going to argue for (or against) working in squatting position, but squats done properly are not going to hurt your knees.