I have a house with old knob & tube wiring.  When I bought the house two years ago, my house inspector told me I can not put in insulation until I replace the house with new wiring.  I have gotten a few quotes (all around 15K) however, each person beats around the bush in telling me if I need new wiring to put in insulation.

My question is, do I need to replace the wiring before putting in insulation?

Yes, you need to replce the wiring before putting down insulation.

You should replace the knob and tube if at all possible.  It wasn't designed for the modern appliances and modern electronic equipment.

The knob and tube can heat up.  It needs the air to release the heat.  If it is surrounded by insulation, it will retain the heat and can catch fire. 

If you plan on using a TV, stereo, curling iron, blower drier, etc. you should replace the knob and tube.

Dirty Water is right.. knob & tube can be dangerous, especially if it's been compromised at all. 
I'd suggest getting an electrician over to take a look.  They can give you an idea of the condition and an estimate for what needs to be done.  Make sure it's a licensed electrician & not a general contractor though.  Re-wiring our entire second floor was under 2K... the peace of mind is worth it!

You need to get rid of the knob and tube wiring, no question.  Insurance companies freak out and will drop you like hot plutonium if they even suspect knob and tube.  Knob and tube was ok in the 30s and 40s when all there were was light fixtures and a radio.  With modern appliances such as refrigerators, electric ovens and dryers, xboxes etc this wiring can overheat very easily and, with the old wooden structure, can go up like a match.

Get a licenced electrician in that building for a good long inspection and prepare for the truth.

In Response to insulation and knob & tube wiring:

Hi,
Just found your post; we too were told we must have the knob & tube replaced before we can add insulation.  We weren't told about the dangers with regard to modern day appliances, though-good to know.  I guess that'll have to be moved up on the "must do" list.  Thanks.