Secondly, it looks like it's the top of the knee from my wife's view, but the kilt is actually a little higher, again probably 0.5"-1.0" from the top of my knee cap if you look directly from the side, not looking down. Is that height still ok?
Personally, I think it's fine. Keep in mind that everyone else is going to be seeing it from eye level too, not directly from the side.

The trend these days seems to be for folks to wear modern style (utility-style) kilts at the bottom of the knee. But I prefer to wear them as kilts should be worn, at the top of the knee or slightly above. A half inch to one inch above the top of the knee cap is perfectly fine. As a visual comparison, here's how I wear my Utilikilt: