From what my friend at the bike shop told me, with your foot completely level, there should be a small amount of bend at the knee. Locking the knee out straight should lower the heel a very small amount (1cm tops?). Also, it looks like your elbows are locked. Is that just because you were posing for the pic? Your stem does seem to be crazy short, though. I'm guessing you can look down when you're in that position and see the hub well out in front of the bars. All that being said, if it doesn't hurt, why change it?