Possible torn meniscus

I am a 32 year old woman. I have a 2 to 2 1/2" round cyst on the inside, posterior of my left knee that I have noticed within the past three months. The last possible injury to this area occurred 2 years ago. A recent MRI showed no tear of meniscus, but possible "category 4 arthritis" behind my knee cap (my doctor is not quite sure what this means). His recommended treatment is exploratory surgery, but says that if the problem is my meniscus, whole or partial removal is the only treatment. Is a full or partial menisectomy the only treatment? Depending upon the problem, is a meniscal transplant an option? Does this case call for more information about the condition of my knee piror to exploratory surgery?