Izzy, here's my take on your bicycle issues.

Your knees really shouldn't hurt after a ride, even if you aren't in great shape, unless-

1. Your bike does not fit properly, which is not merely a matter of frame height. There are many different factors. Even a change in crank length or a different stem can change a things a lot.
2. You are riding on very rough and jarring surfaces.
3. There is something wrong with your knee(s), either an injury or something you were born with.

If you are going through bikes so quickly, and are uncomfortable after 12 miles (which really isn't all that far), then spending the moeny for a better bike (i.e. not a department store bike) is probably what you need to do. I'm not talking about a top end bike, just something from a better company and sold in a store where they can help you with the fit. Many department store bikes aren't even put together correctly. A decent bike will be lighter, stronger, and repairable.

Make sure you tell the bike store people any issues you have had with your old bike too (i.e. knee pain). Tell them what type of riding you are most likely to do also. If they don't want to listen to this, and don't help you with the fit beyond frame size, turn around and walk out the door. Not all LBS (local bike shop) are created equal. A good shop will even change stem size or angle for free, as long as the new stem isn't a lot more expensive.

You may be able to find a used bike that fits you well too, but that is a bit more of a gamble. If you have the time keep checking any LBS that carries used bikes until the right one comes along. Right about the time that new bike models come out is the best time to look due to all the trade ins. Just like wtih cars, a used bike can be a lot better value as long as you are buying it from a reputable store that checks them before sellign and offers some sort of a limited time warranty.

I'm not surprised the garage is rotting the rubber on your bike or causing rust. I've heard of that happening to other people, sometimes at an alarming rate. I've never had any problems though, so I'm not sure what the diffeence is.