I have several favorite spots for sipping some great coffee and knitting.
Indigo Coffee and Tea (http://indigocoffeeandtea.com/) is my favorite place for sipping on coffee; it's a fair-trade coffeehouse, with wonderful coffee roasted locally, and is also an art gallery featuring locally made art. I also happen to work there, so I might be a little biased- though I know the coffee drinks I make rock!
I also enjoy sipping and knitting at The Sow's Ear (http://www.knitandsip.com/). I took my first class there 4 years ago this month, and have been addicted ever since. They have a great selection of yarn, comfy chairs, fabulous classes, and friendly gals to help sort out knitting problems. Even though I work at the coffeehouse down the street, I still go to the Sow's Ear once a week or so for their yarny goodness. It's all good!
I tend to knit and sip on the go, as well. I like to knit at my oldest daughter's ice skating lessons and soccer games, and if I have coffee handy, it makes it even better.
At home, most knitting is done on the couch in front of the tv, like many others have posted. No pets to keep me warm- just 4 kids that try to grab my skein or needles. So most knitting is done under cover of darkness.
I love seeing/reading about everyone's favorite spots- gets me itchy to knit and sip right now!