Rubystars is spot on with the water advice, I always tell people that it's 64 oz baseline + 8 oz for every 10 lbs you want to lose. Some people think it's bunk, but I can't lose without it, plenty of water actually helps me feel better too as my joints are less sore and achy. I also get constipated rather easily if I'm dehydrated, but that's another issue altogether.
One piece of advice that I don't see on this thread is for you to evaluate your pie chart. Every body is different, but I lose more easily if my pie chart contains less than 45-50% carbs and I keep my protein at 30% or a little higher. So you might want to take a look at that and see if you can tweek your 1250 calories/day.
Okay on to exercise. I have a bad knee too, it's been reconstructed twice, I also have the beginnings of arthritis in both knees, my right shoulder and in my neck. On top of that I'm a walking barometer, if there is a front coming through I hurt head to toe from atmospheric pressure changes. Yet I greet the day with a 60-70 minute workout, my goal is to bring on a full body sweat and keep my heart rate up for the duration. It hurts yes, but I hurt a lot more when I skip it. So a little pain in my book is part of the journey, no pain - no gain. And for the record I'm 12 years older than you, so as far as I'm concerned you need to stop making excuses for not exercising and flat out get it done. It's hard yes, it hurts yes, you'll probably have to take it in baby steps yes, but chances are this is what you need to do in order to break that plateau and keep it moving on down the scale. So consider your butt kicked off the couch, hate me if you want, but in the long run I'm right and we both know it.
Starting weight: 244.6 lbs. 10/01/09
Pounds lost: 80.6 lbs
Current weight: 164 lbs
Goal weight: 120 lbs
Weight to go: 44 lbs
Goal Date: 1/1/13