Once you boot up with the cd Knoppix automatically generates an XF86Config-4 file which is stored in ram in this location /etc/X11. so all you have to do is copy that file to your chrooted environment in the same location. My chrooted enfironment is stored in "/mnt/hda2/aWORKing/"

So here is the command I used to copy the file and than run startx in chrooted environment.

cp /etc/X11/XF86Config-4 /mnt/hda2/aWORKing/etc/X11

Once you're in chrooted X windows environment anything you modify is on the fly and is saved automatically. Once you logout you have to copy the /home/knoppix to /etc/skel and chown it to root. This is how your settings get saved, at least that's how i understand it.
Once you are don delete the XF86Config-4 file from your chrooted environment that you copied to get X Windows up and running and also delete /home/knoppix once you are done.