I've been in some pretty traditional/strict dojos, and they all let you sit cross-legged if your knees hurt too much in seiza, except the few brief moments of bowing in and out of class. And if your knees hurt too much for that, you might question if you shouldn't be taking a break from Aikido for the moment, as most movements will be harder on your knees than seiza. This is no to say that seiza can't hurt your knees, if you have a weakness in the lining of your knees. But the old war wounds thing, that would hurt with movement more than seiza.
On the subject of bad knees, most 'my knees hurt too much' statements I've seen are not associated with any trouble with the knees in any other way, and often seem more related to tight muscles/tendons that the individual is not overly interested in stretching. I think senseis can figure out when that is happening, as they see through the I'm-stopping-practive-to-tie-my-gi-or-because-I'm-dizzy, rather than out of shape excuse. Sharp fellows, those senseis...
I think the only time I've seen anyone reprimanded is when they are sitting with their legs out straight, or just casually laying around. That is not only rude, but dangerous.