Old cloth covered AC cable was in my opinion, the worst of all
building cables. Anything would be better

So, you would rather have knob & tube or 2-wire ungrounded NM?

Assuming the insulation is in good condition, either is actually quite
usable electrically (though the lack of ground is a problem).

However, you can insulate around NM wire, whereas you're not supposed to
insulate around knob and tube wiring. I think it's because the insulation
doesn't hold up to the increased heat build-up.

Anthony