In my opinion, sitting in seiza is probably not permanently bad long term for the knees, because, well, the position hurt me horribly and I do not suffer permanently because of it.
I can tolerate it for short periods, but as Sardathrion suggests, if one hasn't been doing it since childhood, then starting to do it when older will result in pain.
Nevertheless, the act does not contribute to my performance of any Aikido, Hapkido, or Karate techniques, when/if we do it. It does cause me to have to recover for a minute or so just to be able to move around, and so in this way, it's probably not good, since that inability to capture balance or feeling sensation below the knees can be dangerous. But really: how long does that sensation truly last? I don't think it lasts long enough to be a problem at all. On the other hand, for me, after sitting in seiza for a long enough period to get paresthesia, during that recovery period, my blood pressure tends to drop a little, as I experience temporary dizziness. I suppose this could be a secondary problem, whereby being dizzy while standing, and then not having the ability to feel anything except the pins and needles sensation could have a deleterious effect on training. But as I said, it's temporary. I never get this feeling after getting up from sitting in a cross-legged position.
Is it definitively a bad thing, like we know that smoking is bad for your health, and that there are no positives to it? There are not many studies out there suggesting anything one way or another.
There is one article that suggests it "could" be dangerous...
A case of crush syndrome induced by the kneeling seiza position
In it, it says crush syndrome resulting from as little as 20 minutes from sitting in seiza has been reported, and, that's about the longest I've seen anyone sit in that position at a martial arts seminar. I suspect that anyone who is not used to this position will readjust themselves long before 20 minutes is achieved, unlike what could happen in an accident, as suggested in the article. Also, the victim's weight probably played a factor in that accident. Most people sitting in seiza for martial arts practice have the capability and freedom to readjust to a more comfortable position, so, I suspect that any crush syndrome will not result from any martial arts practice.
It should be noted that there are many articles on this subject, but most of the time the articles suggest an acute condition, such as temporary paresthesia. There is no suggestion that sitting in seiza can lead to chronic problems, whether sitting once or over a lifetime. If there was, I suspect that the Japanese and Korean Surgeons General would call for a war on Aikido and Hapkido - two styles which use it a lot.