Padmasana can cause various problems for yoga practitioners. Meniscus tears usually occur as a result of falls and accidents but in yoga they can be caused by incorrect functioning of the Popliteus and Semimembranosus (inner hamstring). Both of these muscles control rotational forces in the leg. The Popliteus muscle retracts the lateral meniscus, while the Semimembranosus retracts the medial meniscus, preventing the meniscus from being compressed and torn when the knee is flexed. Swelling or pain in this area can cause muscular inhibition, making the meniscus vulnerable to injury.
Rotational forces are controlled by the hips and if the hips are unstable, you get incorrect functioning of the muscles around the knee, or overactivity of the hip flexors, causing internal rotation, which is problematic in Padmasana, because it requires external rotation at the hip.
Padmasana can also strain or overstretch the supporting ligaments at the side of the knee, more so when in asanas like Baddha Padmasana. People with longer, slender limbs have fewer problems because the length of the leg creates a smaller angle at the knee.
Sitting in Padmasana for long periods if you have shorter limbs is not a good idea, it is better for the knees to use Siddhasana when meditating.
Ellenbecker, De Carlo, DeRosa, 2009, Effective Functional Progressions in Sport Rehabilitation
Sharkey, 2008, The Concise Book of Neuromuscular Therapy
Sports Injury Bulletin: Popliteus