I think it might still be broken...
I knocked a certain goblin out and eventually got him up (think I took a long rest, or maybe cast a cure spell on him -- can't recall).
At any rate, once he was on his feet he immediately turned hostile and I wound up having to kill him anyway.
I also knocked out two, nice, young lads looking for their sister and once they were both KO'd, a dialog kicked in that acted like they were full dead.
I didn't bother to try and wake them up because I just assumed they'd be hostile and I'd have to kill them anyway.
Right now, the Knock Out option seems like a "nice idea" that doesn't actually work. At least, certainly not how you'd expect.
One thing that would be nice (and maybe it's there -- I didn't try it) is if you could use ropes on an unconscious character to tie them up so that when they wake up they can't attack you. Maybe that's in there, but I somehow doubt it.