I study Iai as an integral part of my aikido and iai is always done on a hard wooden floor, knee pads (for me) entirely irradiate
any knee issues.
I use kneepads whenever I do Iai on hardwood, but I don't like to. They put too much weight on the tops of my feet. My favorite surface to do iai (or nagewaza for that matter) is Zebra/vinyl tatami on a hardwood floor. You don't sink into the foam, you get a stable grip on the floor, but you get just enough give. My line of iai does a lot of jumping/dropping movements though, so a little padding is way nice.