I would invite the electrical inspector in before I started any work. This has the potential to be a money loosing headache.
Nothing wrong with knob and tube that still in good shape. Problem is you do not know what some one else has done to it.
Some local AHJ's have thier rules on what they will accept and what and how far you have to go on remodels. If what the owners want is acceptable to the AHJ go for it. If not get the scope of work and money right before hand
