Definitely try the supplements and invest in steps or ramps. We went thru a grade 3 lp surgery last year. Hot Rod was 1 1/2 at the time. He's done very well since, the surgeon and vets have said that his little knee is as tight as can be. The surgeon also said that he should not develop arthritis from this either.
I would get a 2nd opinion from a qualified orth surgeon. Did your vet take xrays? This will show you the extent of the injury. If your little one is not in any pain, then I would probably hold off on surgery, but if he seems to wince and hobble, then maybe take another look at it. Surgery, once done is the easy part...the recuperation is a whole 'nuther story.
feel free to private message me if you have any question. Best of luck.