"...PAIN ON THE BACK RIGHT SIDE OF MY RIGHT KNEE."
Is the pain just above or below the knee? If it is just above, then you're looking at your right outer-hamstrings.
If it is just below - then it will more than likely be a muscle coming from below the knee, down the side of your calf.
"LAST MONTH I WAS ON A MACHINE WORKING MY HAMSTRINGS AND THE PAIN STARTED..."
This statement leads me to believe the pain will be coming from "just-above to almost right behind" the knee, meaning it is your right outer-hamstrings that are causing the pain.
QUESTIONS ARE:
1. HOW TO GET OVER THE NOW CHRONIC PAIN
To get over the now Chronic Pain, you must go through more pain...
You're muscles are tight, the bellies are tight and they're pulling the tendons, which are connected to the one.
Stretching will help, yes, because it puts length back into your muscle - meaning the 'pressure' on the tendons will lessen.
However, stretching is only PART of the solution - when you use your muscles and 'strain' them - that is going past their trained strength use - then the muscle will react and jam itself.
You need to unjam this muscle through massage - particularly Deep Tissue Massage, if you can find someone.
This muscle is a bugger and I have to work on mine almost everyday, unfortunately it goes by unnoticed by many.
The easiest way for you to start unjamming it yourself is this:
Sit on the edge of a wooden/hard table with your knees hanging over the edge, and the very edge of the table within at least 8cm of behind your knee. Now roll your leg slightly to the outside and then lean on it...
2. HOW TO PREVENT THIS AND STOP WEARING THE BRACE
KLARE said, "...ultrasound/interferential therapy, massage and exercise rehabilitation................"
But unfortunately a Physio who uses ultrasound in these cases is a bit misguided, and again - unfortunately, the majority of them do.
However, to prevent this injury - keep maintaining your muscle - get massage, especially Deep Tissue Massage regularly.
NOW, read these posts:
http://www.cyclingforums.com/t86579.html
I've given you the exercise for your outer-hamstring in Qn1, but this will explain how to maintain your ITB and Quads (around the knee) too, and also explains about 'maintenance'.
Finally:
"I'VE LOWERED MY SADDLE ABOUT 1/2 INCH ALREADY. NOT SURE IF I SHOULD MAYBE MOVE IT FORWARD OR BACKWARD THOUGH."
Saddle position is too hard to comment on without seeing you on your bike.
However, I can tell you that moving the saddle forward will bring your quads into play a lot more - moving it backwards - your hamstrings.
BUT, work towards prevention by maintaining your muscles!