See this post for detailed discussion on that matter.
And did we ever get confirmation that your valve adjustment is proper? If the valves are too tight it'll cause all the problems you list except the mysterious "knocking-like sound"; it'll cause rougher running when hot than cold, it'll cause high leakdown, it'll cause cruddy gas mileage. I don't think your "knocking-like sound" is related to your poor mileage.
