Yes, you can do this. Remember, you are talking about fitting to a frame that's too big, so the geometry of the bike is all screwed up for you no matter what. Your CoG (center of gravity) will always be too far back. That said:
You can go with a riser bar and stubby stem, (say 50mm). Titec makes (made) cool blockhead stubby stems in different sizes, some with an aggressive rise. Very strong. Search eBay, they're cheap. Same with eXotic riser bars. And, you can add spacers under the stem.
Oh, and as far as KOPS position, lots of MTBers are behind the spindle. It's a mashing position, if you knees aren't complaining you're fine. Spinning up grades and sprinting isn't going to be your thing, you'll be standing.
Last edited by FrenchFit; 09-25-11 at 08:32 AM.