Thanks for playing!!
The hitstun/knockback/invuln mechanic works like this right now:
When you get hit a "hitstun" timer that lasts .35 seconds starts and an invulnerability timer that lasts .45 seconds starts
While the hitstun timer is active you can't control your character, so that leaves you with .1 second of simultaneous control and invulnerability (this feels longer because the game timescale also slows down and ramps up over ~.5 "seconds" when you get hit).
If you get hit again while invulnerable, the invulnerability timer restarts, but the hitstun timer doesn't, so you can still influence your velocity while invulnerable. It's true though that it's possible to be knocked back in such a way that you basically have no ability to prevent yourself from taking damage, this especially happens if you don't get hit a second time and don't get to extend the amount of time you're invulnerable.
It's not really a perfect system for sure, and I love your suggestion of having the knockback effect diminish with each hit.