I've read that some knitters have successfully carried interchangeable bamboo needles in their carry-on. They just take the needles off the cable and store them in a pencil case.

I personally haven't tried it; I just take my knitting on needles that aren't super expensive and put a lifeline through the knitting. That way if they really want the needles, I can slip off the project and stick it back in my bag. The only place I had security look more than once was SIN. I took the needle back from him and poked myself in the finger with it (with obviously no injury). He laughed and waved me through.

Does your wife crochet? For some reason bamboo crochet hooks are seen to be less of a threat than needles.

And, getting on my soapbox for a moment, what could you do with a knitting needle that you couldn't do with a ball point pen? (Besides knit an afghan...)