It's really, really fun and a very cool original concept. My only complaint is that the controls make it unnecessarily difficult.
Maybe instead of checking for "E pressed" you can check for "E is down" while you motion with the mouse, and the knife lets go based on the motion of the mouse and the key being down, instead of pressed. Because you're never going to want to drop a knife right next to you or lightly toss it, so there's really no need to have the knife release on a simple button press and have it not go anywhere. Just my thoughts on it.
But anyway, I really love the idea and the originality of it. I could see this game taking place in a complex dungeon with switches and doors, I would totally play that.