Cute. Died a few times to begin with, but once I figured out how everything works I had no trouble stabbing all 61 of the buggers on my first play through. Fun while it lasted, and didn't outstay its welcome.
The knife is in the first level. The trick is that spikes don't kill you if you touch them from the sides or gently drop down on them (while standing on a ledge next to a spike pit, press down and jump). Once you get it, you can kill Nazi fuckheads by walking into them from behind or dropping from above.