I would have to be there to hear it. You may want to have it towed to a shop to get their opinion.
A knocking noise is usually a rod bearing or other internal engine part, and very serious damage can result.
http://youtu.be/KxB-a7C_H20
This video shows the exact same noise my xterra is making...
I don't think that is a youtube.com link.
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SOURCE: 2001 Nissan Xterra Knock sensor Took
it is a single wire sensor under the lower intake manifold. they are common to fail. it is a pretty big job to do. if you have the upper intake manifold then you need to remove the fuel injection rail and remove the lower intake manifold requiring new lower gaskets and the coolant will also drain to this level. watch for coolant draining into the intake ports of the heads that can cause hydro-locking. once the lower intake manifold is removed you will see the sensor right on top of the engine block about 3/4 the way back. good luck....
SOURCE: nissan xterra knock sensor
It's the valley of the engine underneath the intake manifold. It's about an $800 job because the top of the engine has to come off. However, unless you have a supercharged xterra it shouldn't effect performance. Also, the knock sensor will not trip the check engine light, as it does not indicate a primary problem, so if your light is on you should have another code that should be fixed first.
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