For me, I like it just above the kneecap, which is how I was measured by my kiltmaker (North Channel here in the Seattle area, btw). Besides, our knees are supposed to show when we're wearing a trad. kilt. The kilt hose I usually do wear about 1/4-1/2" below the cap, since, in my personal opinion, having it 1" or more away from the cap looks a bit strange.
-J