Squatting with your heels elevated does put more stress on your knees, but it also places much more stress on the quads, shifting the emphasis away from the glutes. This is because it allows the knees to travel much further forward.
The center of the bar is directly above your feet (if your center of mass is not directly above your feet then you will fall over), so the torque about the knee joint is proportional to the horizontal distance from you feet to yoiur knees. Likewise, the torque about yoiur hip joint is proportional to the horizontal distance from your feet to your hip joint. So the further back you allow your hips to go the more work your glutes (and hams to a lesser extent) do, and the less work your quads do. Using blocks under the heels allows you to keep your hips almost above your feet (meaning the glutes do very little work) and your knees to travel way out in front of your feet, meaning that your quads do almost all the work.
I used to use blocks under my heels all the time, and found it very effective for building my quads without making my glutes too big. By the age of about 26, I did start to get pains in my patellar tendon, just above the knee cap. For the last 4 years I have had to do my squats without the blocks, so as not to agrevate the problem, but as a result my glutes grew quite a bit. When my knees allow it, I still occasionally use plates under my heels (though smaller ones than I used to use) and I still find that when I do this I get a far more effective quad workout (incidentally, I always use front squats rather than back squats).
In summary, I think that whether or not you get problems with your knees depends largely on whether you are predisposed to it. There is no doubt that bringing the knees forward puts more torque on the knee joints (and therefore more load on the quads), but many people's knees can take this with no adverse effects.
Rob
