I have osteoarthritis in ALL of my joints. My knees, hips and neck are the most affected. So, I use my kinect. I have a Your Shape Fitness Evolved and UFC Personal Trainer both of which allow me to pick and choose what exercises I want to do. I can easily stay away from high impact exercise like jumping jacks, or sumo jumps which is how I injured my knees to begin with.
UFC Trainer makes it very easy to workout without involving the knees as much as you might think. Most of the training is upper body. There are agility exercises that involve jumping and other exercises that are hard on the knees, but these can easily be avoided.
I've created my own workout routine using both games, and I've lost 70lbs. So it can be done, you just have to get creative.