The Bible teaches that God is omniscient, which means He knows everything (Psalm 139:2-4; Proverbs 5:21). He knows what has happened, what is happening, and what will happen. In fact, He transcends time, so we can simply say, God knows. If God knows outside of time, then the question is not did he know before, but "why" did he create Lucifer if he would rebel?
Lucifer was originally an angel, a created heavenly being. He led a rebellion against God (Ezekiel 28:17). And just like man, God seems to have given angels free-will. Lucifer and a third of those in heaven chose to rebel against God (Revelation 12:4).
I think God created man, heavenly beings like angels, and even Lucifer himself in order to have a relationship with them. And in order to have a two-way consensual relationship, God gave them free-will. They were not forced to have a relationship with their creator, they were able to choose to have one (Acts 17:26,27).
My basis for this is being a parent. My wife and I chose to have children. We knew we would love them. However, unlike God, we are not all-knowing, so we don't know how our children will feel towards us when they are older. We hope and pray they chose to love us and maintain a healthy relationship with us. But we have no guarantee because they have free-will to choose. So for argument's sake, let's assume we did know that 1 out of every 3 children we have would rebel against us. Would we still have chosen to have children? I think the answer is "yes." For the love of those children who would choose to keep a good relationship with us, we would have still had children. The flip side are offspring who would be forced to love and obey us - kind of like an appliance or power tool - does what we need, but is not capable of filling our relationship void.
Even though God foreknew that 1/3 of the angels in heaven would rebel against Him and be removed from heaven, He still chose to create them. He didn't create robots to be programmed and do exactly as they are told. He chose to make free-willed beings - both angelic and human - so that we might love Him.
Another theory floating out there on the Internet is that God needed a "bad guy" in order to send Jesus to "save" us from sin and eternal hell. This too is a valid possibility to consider, but I think primarily God's ultimate decision to create was to make beings who would reach out to Him, love, Him, and ultimately make their homes with Him.
