I read an article a while ago relating to bike fit and setup.I remember something about your knee is supposed to be in line with the centre of the pedal when the cranks are at 3 and 9 oclock. Is it from the front of the kneecap or that kind of knobbly bit close to the centre of the knee?

KOPS

http://www.sheldonbrown.com/kops.html

Try putting the driveside crank at six o clock then aim for a 15-20 degree bend in the right knee, this works well for me, if you get a cramp in your thighs lower the saddle a little until it goes, remember to keep your right foot horizontal when you make the adjustments.