yeah, the stock stem is pretty long.
I looked into doing that for a while but couldn't find exactly what I wanted.
Knee pain is never good, I'd definitely move the seat back until the knee pain goes away.
As far as the frame being too big for you and feeling stretched out, shorter stem is all I can really think of to help fix the problem.
Well, that and the thought that you'll probably get used to it eventually.
If the bike is a recent purchase (and very recent) then you might be able to exchange it at the LBS at which you bought it.