I'm of the firm belief that since this is "FOOTBALL" i.e a sport played with the feet, that only the feet should be considered as being able to be in offside position. Yes i know that the other parts of the body can and do make contact with the ball (knee, chest, head etc) and even scored with, but ultimately for this type of decision the postioning of the feet are the key element IMHO.

offside, his knee has passed the opponent, so it's a foul

BTW - a bit pedantic maybe - but offside is not a foul its a mere infraction. Fouls can be punished by more than just a free-kick (yellow and red cards for instance).