Good progress!!! For the knee pain, you might try moving the saddle back (away from the bars) about a cm. It might also need raising a cm but would go with moving it back first.
That's one of the challenges with an "undersized" frame. The saddle will need to be a taller from the top tube than preferable which will tend to put the bars a little lower in relation to the saddle height. It's not a huge difference but when you hear folks talk about a perfect fit, that's some of the little things that are noticeable and increase comfort.
Just as info, I'm very fortunate and have been able to stay pretty flexible-and I guess it doesn't hurt to have extra-long arms. My handlebars are 4 inches lower than the saddle on one road bike, 3 inches lower on the Madone and a good 5-6 inches lower on the TT bike. When I've rented bikes that had the handlebars even with the saddle it feels like I'm sitting straight up!! I guess it's all what you get used to.