sigh ok.. i know this is going to make me unpopular BUT....
I'm a university professor and if i saw someone knitting in my class i would ask them to put it away or leave with no second thoughts. Maybe i'm old-school, but i think that when you're in class your role for that time increment is to be that of a student - paying attention, respecting the time i put into my lectures and the time i take to present them. Teaching isn't a lark - it's incredibly time consuming. I take my role as educator seriously, i would hope my students would too.
Now i know that some of you have said that it helps you pay better attention, and i don't dispute that, but i think it comes down to a respect thing. I wouldn't like it. And if i DID have a student who wasn't taking notes or was knitting and then came to ask me a question i had already covered, i'd assume it wasn't because they didn't understand the material, but that it was because they weren't paying close enough attention.
So yeah - i would hate it. School is for school, home or leisure time is for knitting (and my lectures aren't leisure!). Sometimes life is regimented and it's not a bad thing. I don't knit while i lecture (or listen to music, or send text messages, or surf the internet or do any of those other things my students love to do even if i wanted to!), so i'd find it disrespectful if others did. I'm pretty sure a lot of my colleagues feel the same.
just my $0.02 from my side of the fence..