Knoppix ISO boot problem

Hi.
I am a complete newbie to Linux. My friend gave me a Knoppix 3.3 Live CD. I finally decided to install it. I want to load it from the ISO image. So, based on a thread in these forums, I idi the following:

1.Formatted my D: drive (20GB) with FAT32 format.
2.Created an ISO image of Live CD with a software called MagicDisc.
3.Copied the ISO to D: (later in Knoppix, I found out D: is known as hda5).
4.Booted from CD.
5.Typed at boot prompt "knoppix bootfrom=/dev/hda5/linux.iso(I have reanmed the file to linux.iso)
6.The Next step was to create a persistent home directory in the same drive, but I found out that Knoppix was still running fom CD, obviously, the BOOT from iso failed.

So, I have a few questions:
1.Was it a good way to make an ISO image?
2.When I run linux from CD, it shows my directory structure to be "/mnt/hda5" while I was told to do "/dev/hda5". Is there something fishy?
3.If I install Knoppix into hard drive(I have 2 hard drives, can't figure out which partition belongs to which drive), it'll partition at least one of them. All other partitions except D: are in NTFS. Will I loose my data?
4.Is "booting from ISO" as good as booting from hard drive?
5.How to make a persistent home in Knoppix???
6.Does my partition need to be in ext2 or ext3 format? Can't it remain in FAT?

Thanks in advance.