This is 100% how all of the Trek performance bikes feel to me when I am on a bike that is set up properly. I talked to my buddy at the dealer and he said he has heard that before and it is one of those things were the frame either fits you or it simply isn't the right frame for you. A 56cm Trek (Madone or 5X00, 2X00) feels super cramped when I am out of the saddle and ok when I am sitting. On the other hand a 56 cm Cannondale Six13 I have to reach too far when in the saddle and I have plenty of room when standing. My 56cm Salsa was long in the TT so I have a non setback post and a 100mm stem on it and it fits great (this is also how I would have to set up the C'Dale, stock the 56 has a setback post and a 110mm stem).

The Trek really may not be the right bike for you.

If you have a known issue like your knee then I think roadwarrior's suggestion of a professional fitting is a VERY good one. A good fitter (not talking about the shop that sticks you on a bike and watches you go around the lot or on a trainer for 5 min fitting) will take his/her time and ask questions and directly address the knee issue. I had a knee issue after a MS150 this year and decided to plunk down the cash to get a pro Serrota fitting. It took 1.5 hrs and I was on and off my bike in that time. The fitter did a flexability test on me as well as took body measurements and asked many questions about how I ride and what I was looking to fix/change. In the end we lowered my seat a VERY small amount and moved it back a couple of mm and I haven't had a cycling created knee issue since then.

One problem with your far forward saddle position, especially if you plan to race is that there is a UCI specification on the fore aft position of the saddle and a Tri/TT position is not legal in a crit or road race.