Hi Jane,
I myself have been having similar problems and agree with everyone else that it does sound like ITBS (IT Band Syndrome). I have been running for a couple of years with no injuries and niggles, and then all of a sudden I started getting the pain on the outside of my right knee whilst cycling. This then started causing me problems during my runs. Not being able to cycle I could deal with, but not running has proved to be a nightmare!
I'm not medically trained but from what I've read, this is related to weak hips, as mentioned by buder above. The IT Band runs up the outer side of the leg from the hip down to the knee, which is why we experience the pain at the knee.
I bought a foam roller a few weeks ago and have been using pretty much every night, albeit it's quite uncomfortable in places at the moment, apparently it should help. Many people also suggest a deep tissue sports massage from a physio, which I had for the first time last week. Be prepared for a bruised and tender leg afterwards as the massage is pretty intense!! Having said that, the physio did say that my IT Band felt a little less tight afterwards. I've now got another one booked for later this week.
As for stretching, there seems to be mixed responses. Some people say to stretch it where as others, including my physio, say not to bother. The IT Band is very thick and naturally tight, so stretching will not actually benefit it that much. I personally like to think that I can try and stretch it and have been doing some alongside my foam rolling.
Hopefully you get yours sorted soon.
Jamie
* As for compressing your profile image, Photoshop or another similar program will do this for you. God luck!