Now this is for Kanotix but Knoppix *should* be similar. I have no idea about the Knoppix kernel.

Just loop mount the cdrom
Code:
mount -o loop /dev/cdrom /cdrom
cd /cdrom
Copy the compressed image to hdd:
Code:
cp -R /KNOPPIX/KNOPPIX /mnt/hda7
Copy the /boot directory to hdd:
Code:
cp-R /boot
Add an entry to your boot loader to point to the image:
Code:
title Kanotix BH09
kernel (hd0,6)/boot/vmlinuz ramdisk_size=100000 init=/etc/init lang=us vga=791 n                           
omce alsa xmodule=fbdev home=/dev/hda7 myconf=/dev/hda7 hdb=scsi
initrd (hd0,6)/boot/miniroot.gz
You can even save your persistent home to the same partition (despite what others may tell you )

You can also run the installer when booted to the compressed KNOPPIX image from hdd. It's very fast. When you want to upgrade simply replace the KNOPPIX file. No change to your boot loader is required.

It is also possible to mount the knoppix.blah.iso. There is a howto for that somewhere.