Knees are very cool things, and they have some very cool ways of "resetting" and repairing themselves. If you are not looking forward to surgery and are unsure about it, and willing to try another approach with PT, may I suggest you find a certified Mechanical Diagnosis and Therapy PT (aka "McKenzie").
If an MDT certified therapist tells you that you are best served by getting surgery, then I'd say get surgery. You can search for certified therapists on this page:
http://www.mckenziemdt.org/index_us.cfm
(and if you do, make sure wherever your insurance lets you go that you get a certified or diplomate therapist, not someone who just says "yeah, I know McKenzie" or who has just taken a couple classes)