I have that exact same problem. A stronger core is supposedly the key. My abdominals are non-existent, so I'm thinking that's correct. I have the pilates DVD at home, but somehow it never makes it out of the cabinet.
While standing still on the horse, take your feet out of the stirrups and let your legs hang soft. Then with your hand, roll the underside of you thigh as if you were pushing the excess toward the back of your leg. When you push the "fat" out of the way, it puts the inner part of your thigh on the horse correctly and turns your knee in to where it should be. It will also open your hip flexors. Try and get a feel for the position and then put your feet back in the stirrups without changing that leg position. You'll find you have to use your stomach muscles to keep from slipping back into the closed hip position. It's kind of like posting without stirrups. You can get a little more each time. Good luck.