I think the knocking you might be hearing is coming from the drivetrain, Clutch and flywheel. Engine on the otherhand is not knocking or lugging.
Lugging really wont damage anything, I was talking more about knockin. We dont know if his motor really os knocking or not. OP if you want the internet to diag this for you take a vod and post it too, other wise we are all guessing.