Anchorhead said:
From the first time I sat in the theater, I've always read that scene differently. I felt the "I know" was his way of telling her that if he didn't make it, he wanted her to know he understood her feelings. That they weren't wasted or unappreciated. He would die knowing the truth.
This is how I've always read the scene as well. It's very 'western'. He's been showing his interest in her the entire film, no need for a "I love you too". She already knows his feelings.
Most people seem to think it's played for laughs, but I find it heartbreaking.