Wow interesting diagnosis! The knuckle wouldn't cause that. It doesn't really have anything to do with suspension and thumping and bumping. I would say from your description it sounds more like a shock that needs replacing or a coil spring (more like the rear shock/strut). This seems like a suspension issue not a knuckle. Only possibility from their diagnosis, is the bearing is totally destroyed and even then it is not the knuckle that needs replaced. Perhaps a mount broke off the knuckle? Take it to a local shop not the dealer and see what they have to say.