Actually, yes, you can knit flat circles, and here are instructions for how to do it: http://aly-oops.blogspot.com/2008/03/how-to-knit-flat-circle.html.
This uses dpn's, but you can move your stitches around on regular needles (tedious, I know, but I'd be willing to bet you're not making that big of a circle). You could even slide the stitches from the third needle on to a stitch holder while you knitted with two needles. Then rearrange your stitches again, always using the stitch holder to hold extra stitches while you work with only two needles. Where there's a will, there's a way!