I have found every thing but the knife. I've searched for 3 real time days
and it is nowhere to be found. Could it be a glitch or is it just well hidden??

The knife is one of the hardest things to find, even in the desktop versions. Have you tried using a magnifying glass to help you look? It's surprisingly effective.

Well, I doubt this would be much help considering it's always changing around and everything, but I found the knife just now around the area where there's, I think they're two waterfalls. To the left in the bushes next to the hut.

EDIT: I'd just look really carefully around the edges of the island.

I had a difficult time finding the knife as well. It was next to the bushes by the cemetary and looked like it was a branch sticking out. I must have seen it a dozen times before I attempted to move a villager over it. I like the magnifying glass idea except I'd suggest taking screenshots around the island and then zooming in on the image.

I'm having the same trouble as well. I've enlarged the screen and looked and looked & am wondering if it isn't possible that it's hidden behind something. I'll keep looking but I'm really hope I find it soon. I don't think my alchemy skills will be worth much no matter how I spend on them w/o it.

As I mentioned earlier, a magnifying glass can really help you with those, since using one tends to make objects like the alchemy items stand out much better (in addition to making them appear bigger).

found it! It was in the bushes down by the bath. I'm having a really great time w/ the ipod version. Thanks Lady CFII.