Dear Dallas: I am also a descendant of James Alexander and Margaret McKnitt and I share your confusion because the 'records' are not existing and/or there has been too much 'speculation' about many of the relationships in the whole extended ALEXANDER/WALLACE/MCKNITT families of Somerset and Cecil Co, MD.
I think one of the primary 'sources' for McKNITTs is: "John McKnitt (ca1660-1714) and Some of His Kinfolk: ALEXANDERS -- BREVARDS -- DALES" by John Goodwin Herdon The Pennsylvania Genealogical Magazine Vol. 16, Oct 1948, pp 75-97
In terms of John McKnitt's first wife, Herndon says, "Although her surname is not of record, I believe that she was an ALEXANDER, probably sister to Samuel Alexander with whom John McKnitt was intimately associated in both Somerset and Cecil Counties.”There is NO 'source' cited for the first wife's maiden name!!!Her first name was "Jane" since Herndon cites birth records for four children with this first wife (citation also to Somerset Court Liber IKL): --Robert Macknett ye son of John Mac Knett borne of Jane his wife at Manokin thr fouth day of June one Thousand Six hundred eighty and five. --John Macknitt Son of John Macknitt, borne of Jane his wife ye 8th day of September one Thousand Six hundred eighty & seaven. --Katherine ye Daughter of john Macknitt home of Jane his wife ye tenth day of August about eleven of ye Clock in ye forenoone anno Dom one Thousand Six hundred eighty nine. --Mary Macknitt Daughter of John Mac Knitt borne of Jane his wife at Manokin the twenty sixth day of February anno Domini One thousand Six hundred ninety and one.
This first wife died after the 1791 birth of their daughter, Mary, and John McKnitt's marriage to his 2nd wife: Herndon cites, "28 March 1693 John McKnitt married Jane Wallis (Wallace).[Somerset Court Liber IKL, 173]"
Herndon cites a birth record for one daughter with 2nd wife: --Margaret McKnitt, Daughter of John McKnitt & born of Jane his wife at Monocan the 26th of December anno Domini 1693. [Herndon believes there were two more children, but they are not in the birth records and he believes there were two daughters with the 3rd wife, Martha Dale.
In terms of the identify of the parents of Jane Wallace, John McKnitt's 2nd wife, Jane Wallace, I can't immediately find my notes on who Herndon said were her parents, but another researcher, Jean Wallace Gayle[Gayle, Jean Wallace.“Early Wallaces of Somerset County, Maryland” Maryland Genealogical Society Bulletin.Spring 1993. v. 34, No. 2], citing Herndon says, " “John McKnitt’s first wife was Jane Alexander; she died ca 1692, and John next married Jane Wallis on 28 Marc 1693. [citing Herndon]Jane Wallis is thought to have been a daughter of Matthew and Elizabeth."This would be Matthew Wallace and Elizabeth Alexander.Elizabeth is 'said' to be one of the sisters of the ALEXANDERs in the "Seven Brothers" world.[The other sister is 'said' to be Jane Alexander, the 'said' to be first wife of John McKnitt!!!]
I have tried to find 'documentation' for the parents of all of these people and found myself in circles just like you describe.I believe there is good evidence that Margaret McKnitt was the daughter of John McKnitt & his 2nd wife, Jane Wallace and that there is not enough evidence/documentation to be certain about the other relationships -- and there may NEVER be documentation to resolve these puzzles.