I think you need to stop it now....I'm in the same boat my 22 month old sits like that....I sit like that and have for 34 years. We are trying to break my son of this of it now before it becomes a habbit. I can hardly sit any other way without being uncomfortable... I at least have one foot under me when I sit at all times. I just tell him constantly to put his legs out not to sit that way and he does for like 5 minutes and then puts them right back.
My sons pediatrician told me that it could cause his feet to go inward when he walks eventially. It was funny that she told me this because like I said, I have sat like that for the last 34 years but for the last 5 years my husband had been telling me that my feet turn in when I walk. Nobody had ever mentioned this to me before so after hearing this from my sons pediatrician, I thought I bet that is why my feet are curving inward now. As far as the knees hurting....mine do and they crack when I walk....they didn't used to do that either.
Now, I am not saying that my feet curving inward is definately from sitting that way or my knees cracking all the time but I think it is very likely. So if you have the chance now to correct they way your son is sitting, it not going to hurt.