History and symptoms are pretty typical of an ACL or meniscus injury. X-Rays don't always show these injuries, the only way to see for sure is an MRI/CT scan (talk about money). We get very a good guess with manipulation of the knee joint, that's usually all that's necessary.
When comparing costs of knee surgeries it's important to compare the procedures that are being done. A TPLO surgery is different from a lateral imbrication. Many small dogs don't need any surgery at all in my opinion. It will take several weeks to regain function without pain. The long term benefits are much less universal than I like to see with that major a surgery.
The major reasons for surgery are pain, lack of improvement, lack of functionality (major instability)of the limb and size of the dog (larger than 20-40# much more likely to need surgery).
Doug, DVM