Right now, I would say KG's knee is pretty good.
I think the problem is that KG is at a point where he needs a lot of luck to stay healthy. He is older now, so things are a little broken down, and things don't regenerate the way they used to.
I don't think the knee was ever that much worse than they told us it was. I just don't think he is able to recover like he could when he was younger.
At the beginning of the season, I think the knee was actually pretty good, the problem was, the muscles around the knee had become so weak, that he lost a lot of explosiveness and mobility. He began to gain that back, as the leg got stronger...and of course the only way to get that strength back to where it needed to be was by using it, and playing basketball.
Here is the kicker though. Because the leg muscles were weaker, it made him more susceptible to re-injure the knee in simple plays that he normally would just walk off. The muscles couldn't absorb the impact like they normally would, so suddenly, you have a sprained (or hyperextended) knee, when normally, you would just walk it off.
And unfortunately, this is how I see the rest of his career going. I don't think he will ever be able to fully return to 100%. He will go through cycles, where he will get better and better as his legs get stronger, then he will bump his knee again, miss a few games, and then have to start over, hobbling for a few weeks, before being productive again. So it is all going to be a game of chance, hoping that he can go into the playoffs in the right part of the cycle, and make it all the way through, without being setback again.