You may be on point about your whole system reacting to your knee pain. With fibro, it seems like the system gets primed by a "real" pain to freak out about any pain or discomfort. My fibro pain improves dramatically if I can just stay out of physically-caused pain for a while. Even something relatively small like my feet hurting after a day a work can start the chain if I am not super careful to stop the pain before I try to sleep. If I go to sleep in pain, the next day will be worse. And the painful days build on each other--one bad night leads to a bad next day, leads to a worse night, leads to a much worse 2nd day....It all seems to snowball.
And of course constant pain and incomplete rest are so good for our mental outlook--NOT!