you need both the TORAM and FROMDVD options.
TORAM copies the entire medium to a ramdisk,
FROMDVD causes it to only copy the Knoppix file (compressed ISO) or the KNOPPIX directory, and not any other directories present

I don't know if the Knoppix configuration script still has a hardcoded ramdisk limit. (800MB or 1GB I think, have to look it up).

I'm lazy in testing Knoppix with TORAM though, as you need at least 800MB RAM or so for just the 695MB KNOPPIX file.
and I only have 1GB, so I'm not trying this in VMware but am too lazy to burn a DVD-RW and try it for real.

still have to play with Knoppix 3.6 first.
However, does this filesystem on the ramdisk even support 2.0GB+ files?

should not matter if Knoppix is on DVDRW.
I burn the cdrom-version of Knoppix to DVDRW all the time (DVD 10-speed means at least 10MB/s when copying to RAM, cdrom 50-speed means only 6MB/s or so).