In my own house, all the K&T is accessible by removing the same floorboards that were originally utilized to run it. You find the flooring planks that have been renailed with finish nails and pry them up. And then your attic and cellar and I'd say that an enterprising electrician won't have to touch too much plaster.
Casey

Out of curiousity, what was the cost to rewire? Will get an estimate when I get my contractor out there this week.

In some ways k&t wiring - properly installed and maintained - is actually safer than many more modern kinds because the hot wire and neutral wire are widely spaced, among other things.

I'd have a licensed electrician inspect the system before deciding on rewiring - it may be completely unnecessary.

The other factor is insurance. In some areas of the country insurers refuse to underwrite houses with k&t. In other areas they may want a written inspection or they may not care one way or the other.

We've got K&T in our 1919 bungalow. We've had two licensed electricians (one my uncle and the other a trusted friend). Both assured us that our wiring was in pristine condition. Since it's not exposed to insulation, they said that we wouldn't have any problems. I talked to our insurance agent who didn't seem to care about the K&T. That said I'd replace the stuff if it didn't mean destroying the plaster walls in the house (or cost a fortune to maintain the plaster and run new wiring).

We did get an estimate on running new wiring, but it was $89 an hour with no assurance that he could maintain the plaster walls. That price didn't cover any incidental damage to the plaster nor necessary repair should he need to cut into it. He was unsure of how many hours would be required, but he assured us that it would be many.

Well, the K&T has probably lasted a hundred years already, so it isn't some inherently inferior product.

The drawbacks:

1) It isn't designed for use in insulated spaces.
2) It isn't grounded.
3) The insulation tends to deteriorate over time -and it is already quite old.
4) You aren't going to find anyone with experience to work on it now or in the future. It's a lost art.
5) Who knows how many hacks have messed with it over the years? Lots of crazy stuff might be lurking.

"I would think that if K&T were disconnected from the electric source, it could be left in place? "

Yes, the cables can be abandoned in the walls or ceiling once disconnected.

The biggest problem with K&T is when it has been hacked up and extended using newer wiring methods.

You are very likely to have problems trying to change any switches or receptacles.
The old insulation will fall off the wires as soon as you flex them.
Heat shrink tubing and a heat gun can replace the insulation as long as you can get back to a portion of the old insulation that is still in place.

It takes a lot more work to replace k&T while minimizing plaster damage.
There are just not a lot of electricians all that experienced in fishing wires into stud cavities in old structures.

My house was built in 1926, at one time it was all K & T. It was all replaced except for the run to the attic and dining room lights. And just maybe a outlet here or there.

Knock on wood, never a problem.

If you are going to replace it, I would NOT take it out. Most of the rewiring I had done, involved fishing new wire through the ceiling and walls. Very little plaster was ever removed.

To be fair though, my walls are balloon framed and very easy to run wire.