Sean,
If done correctly (meaning done to code by a certified electrician), expect to spend a lot of money. Not only will you have to remove/replace all the K&T (knob & tube), you likely will have to upgrade your service panel which is probably only 60 or 80 amp. Too low for today's requirements. This is really a job for a certified electrician. Not a weekend job based on what the guy at home depot is telling you...
K&T, although good in its day, can be dangerous stuff. It was designed to be in the walls within open space. The air space in the walls provide heat dissipation. Most often it was only #14 wire too. In addition, the fabric insulation on the wires is likely deteriorated and can be bare in many places. The wire itself could have lots of oxidization reducing its load carrying abilities resulting in easier overheating. Also, over the years, well meaning do it yourselfers have probably hacked into it creating other hazards.
Another thing about K&T is when the house was built, the runs were usually not logical. They would run what was convenient at the moment and would often splice in here and there to run a circuit elsewhere. It can be a real spiders web as to where each wire is really going and what room, or rooms, it is providing power to.
Think about what can happen if insulation is blown in over those old wires and somebody pops in a 30 amp fuse in place of a 20 amp fuse (or breaker) because it keeps popping. Then you plug a microwave in and a space heater (not realizing it's the same circuit). It will over heat.
The insulation guys will often say it is ok to blow in insulation over K&T. Don't believe them for the reasons above. Ask your insurance company if they will still cover you. You might also ask your insurance company if they will still cover you if you rewire yourself and not have it inspected. Just things to think about.
Lastly, consider that our old houses were built to breath. If you button your house up tight with insulation and so-called efficient windows, it can no longer breath. This can lead to lots of other problems. Such as moisture build up, radon gas build up, mold, mildew and so on. This can also have an affect on your HVAC systems. Newly constructed housing that are efficient have all this in consideration. Even HVAC. It all has to be considered as one big system.
Right now if a storm blows through and you get some water between a wall, you probably will never know because it will be able to dry. With insulation blown in it likely will not dry as quickly and can start to cause decay in the surrounding wood.
If it were me, I would do the electrical first. Have it done right. If done right, to code, and inspected, check with your insurance company, you might get a break.
I know, a lot of people will tell you they had it done and blown in over K&T and never had a problem. But, it's your house and family. Don't take a chance.
Do you want to know my thoughts on vinyl replacement windows? Ha! Don't ask.
Just my thoughts and opinions. Your mileage may vary...
