Update for Knoppix 8.2: The same procedure also works with Knoppix 8.2, but there were a few complications I didn't really understand. I also tried the "hybrid" direct dump option, but didn't get a working system from that. Running the ISO image under kvm and copying to flash disk worked fine, but going back to hard disk, several things did not work properly. When i did a lot of upgrading/installing (ca 2GB worth) and wrote a "remastered" image to flash, leaving me with KNOPPIX, KNOPPIX1 and KNOPPIX2 cloop files, the final system worked perfectly, with an almost empty persistent store. Seemingly no problems with hardware detection or graphics - it may have to do with X and other components having been upgraded.
Installing a running system to flash with the "remastering" option can be a great timesaver - in return for a couple of gigabytes extra space used, we don't have to do remastering ourselves, and the whole system is still FAT32-compatible. Which my standard squashfs Debian 9.1 image will not be after the third remastering. A 16GB flash stick will be more than enough for all the space requirements of a Knoppix release.