I remember a few years ago I read an article on a study that said 1) Knees do not Wear Out, it is a sales pitch 2) It said physical therapy for the knees was just as beneficial as knee surgery. I don't remember the name of the study, but it might be worth googling or even using google scholar, to read up a bit on it. Might save a year of pain and a boatload of money.
As for your 2 options, I would absolutely do what the surgeon recommends if you're going to go his route. They see the outcomes daily. My Mom had both knees replaced, she did all those grueling exercises religiously and had a much better outcome than those who didn't...so on that, put in the extra time and effort. Her knee lasted from age 70-80 when all the pain came back as if it was never replaced, now she's too old for a new surgery. Good luck on your surgery