As nobody else seems to have met this...I've sussed it... the knoppix.img file thinks it is full. I managed to delete a few files after copying them to another partition and it now works once more...
Process was:
COPY the img to another PC with more Ram & bigger HDD
BOOT that pc with knoppix cd using cheatcode home=scan...It fell over as described in the original post but has enough raw RAM to load TWM.
FROM that I can see inside the img file to do the copy & delete.
RESTART that PC as normal & its all there.
Now all i need is a bigger HDD on the original PC so I can copy the files to the raw HDD without using a home image file. Hopefully that will tell me before I get locked out.