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Wrong. They are only expensive if you're sitting around not develping your economy. If you have a very efficient stockpile/granary/distance to resources, you can levy +4 taxes with the tradefoff of + so-and-so to your pub, church, and food to your populace.
Knights are much stronger than swordsmen but, as you pointed out, more expensive. You could just pump out swords and zerg the enemy, provided they aren't countering with crossbows. Knights on horseback are more mobile and can close the distance to the enemy lord before the horses are shot out from under them and then they can trudge in close for killing.
Personally, I love seeing the enemy lord crap himself when a huge Templar force climbs to the top of his perch and begins to make scrambled eggs out of his brains.
I am not sure about the total missile resistance compared, i will test it. Still, they seem a bit too expensive to me. The only advantage you get is that they can be fully healed back (if they survive) and that they can ride horses.