Can stem cells rebuild cartilege?

Yes: Yes and this field is constantly evolving.

Yes, but!: Many types of stem cells have been made to form cartilage (including stem cells from fat, marrow, amnion, blood). I have even personally done much research on this. However, the problem is that we have no good way of placing the cartilage back into the knee (or other joint) and keep it in place while the body heals. There are encouraging trials, but no definitive solutions yet.

Yes: Stem cell work can lead to increase cartilage thickening based on second look arthroscopy and MRI studies. However, the major effect of stem cell treatment is actually the paracrine effect of the cells. The cells actually change the inflammatory state of the joint which lead to decreased pain which is more critical than increased cartilage for decreasing symptoms.