If a server serves the ball correctly and it bounces into square 2, opposite from square 4, whereupon the receiver returns the ball to the server hitting him in the knee followed by the ball hitting an inside line, is the server out? - Elaine, 4th Grade Teacher, 1/6/2009
They way we play here in Boston is that the ball may only be touched with your hands. More specifically, we let players hit the ball any way they like with their hands - front, back, fingers, fist, slap, whatever. The hands are any point on a players arms that are between the wrists and fingertips.
So in your case, everything looks legal from the serve to the return, except where the player's legs get in the way. If a player touches the ball with any part of his or her body that is not a hand then we would call that player out. Also, in your case, I don't care where the ball landed after hitting the knee, the round is already over.
Now there are a few special rules that we play in Boston that let you use other parts of your body to hit the ball (like "Body language") or require that you hit the ball with a specific part of your hands ( like "Underhand only") but these are both exceptions to the broader rules of play.
Hope that helps, and send my regards to the sorry fool who couldn't get his legs out of the ball's path. Chances are if he jumped really high then the ball would have sailed right out of bounds and saved him another long wait in line.