As Dr. Doug mentioned, very common in toy breeds. Our last poodle, Potsie, had grade 4 luxating patellas in both knees, but amazingly wasn't lame, nor did he skip when running. His knees were always out of place, even when popped back in - they'd pop back out almost immediately. He did have the bowed-legged look in the back which is also a sign. We gave him 1/2 a Cosequin DS plus MSM chewable daily, which is the loading dose. Because he was so severe, we kept him on this dose daily, rather than switching to every other day as recommended on the bottle after a few weeks. We also gave him a fish oil capsule daily in his food. Ironically, it was a severe back injury that did the poor guy in eventually.
It's important to keep these dogs at a very slender weight to avoid extra stress on the joints. We weighed Potsie every couple of weeks and adjusted his food accordingly. Since he was pretty small (12.5-13 pounds), we didn't let him deviate by more than 1/2 a lb.
Surgery was estimated at around $1500/leg for us, with questionable results expected because of the severity; not an option on teachers' salaries, so we were glad that we didn't have to go that route.