Very grey area!
As crew we are told to be aware of anything..YES ANYTHING which could be easily considered a dangerous item or weapon and i can see how an innocent knitting needle could be considered a weapon as I for one would have removed it had I seen it.
However, there are obvious ways of doing this that shouldnt be considered a way of making a passengers life a misery or creating an embarrassing confrontation. I for one would quietly explain to the passenger about why I am removing it and indeed apologise for doing so. The few times iv done similar the passengers usally sit back and have a bit of an understanding giggle. And I prob would have just left it with the captain in the flight deck until after the flight when it could be reunited with the owner!
I recently had an oval shaped metal keyring with a rubber edge on it which was taken from me at a US airport because it was considered potentially a threatening item!!!! Now this thing couldnt slice through butter but there you go!!!!
Oh...and before i forget....My Aunt just told me that you can buy cardboard knitting needles designed for travelling by air as they would simply crumple up if one tries to stab someone!!!! Just a thought for you people eager to knit some crimbo presents!