I bought my car brand new, and it came with a non-functioning spark control module from the factory--and I didn't know it for YEARS...
For 100,000 miles, my ECM NEVER pulled any timing, so MY knock-control gauge was my EARS! And let me tell you, I got into SEVERE knock MANY times...my only recourse was to feather the gas pedal! To this day, I'm not sure why I never broke anything or lost a head gasket...It was weird not hearing any knock after I finally got a working ESC module!
--then came the timing chain change, and then I started HEARING knock again. This was because my cam sensor ended up being set too advanced (and why I ALWAYS suggest checking it whenever anyone suddenly has lots of knock!)
...if you're getting fairly bad knock you SHOULD hear it! (but of course, not always)...
SO--you have a knock sensor saying you have knock, but a scantool showing no knock retard, correct? Based on MY past experience, it just might be that YOUR spark control module isn't working! And if you're in fact getting into knock, and your ECM isn't pulling timing, it WILL run WORSE knocking at 28° timing than NOT knocking at 20°!
If possible, try changing spark control modules and see what happens...if you start showing retard on your scantool, you found it!