Custom Faction - Free Knowledge technology

Assuming that the research multipliers are additive rather than multiplicative, yes. But it also costs you access to different faction traits that you might prefer to have instead of Knowledge, and the free technologies at the beginning of the game don't really matter that much. It's true that Knowledge is useful, but so is starting with a Water Mage, and by the time I'm ready to build a study I could probably have researched Knowledge if I needed it. Also, if the research multipliers are multiplicative, you'll lose 1% of your research potential (which, I will grant, isn't that much).

It's sort of like the argument about 'Might' and 'Weak' for sovereign creation in FE:LH or 'Noble' and 'Cruel' in FE - yes, it nets you +1 Attack for "no cost", but it also prevents taking different sets of traits (or, in the case of a Cruel Noble, a different profession), and in the cases of Might/Weak and Uneducated Scholars you've sacrificed at least half of the benefit of the trait. If you think it worthwhile, that's fine. +1 Attack on the sovereign, or early access to the Knowledge technology, isn't necessarily worth a lot, especially in the long run.

They should lock out one and other.   If you select scholars, you can't pick uneducated ,etc

Am I the only one that's finding it bugged right now? It's actually granting a 20% bonus to research in my game. Does not grant the Knowledge Tech.

EDIT: Correction, my fault. I was tweaking my Faction through a text editor (much faster than remaking the whole thing to change one thing) and inadvertently typed in "Scholar" instead of "ScholarsTech", which told the game to use the old version of the trait instead.

I agree. However, since this is single player, I think it would be pretty cheesy to do as the OP is suggesting. It feels like an exploit to me, so I won't do it. Problem solved.

If you're inclined to do otherwise, so be it.