I've just noticed that Knoppix Persistent Home 0.4 has been released -
it may just fix your USB drive probs ........

You can download it under:
http://www.centernetworx.de/knx_persistent_home_0.4.zip

Changes to the alpha version (for those who have tested it):
- The problem with the weird icon locations is fixed
- USB-thumbdrives and ZIP-drives are really supported now (thoroughly
tested!)
- Extra scripts "preknoppix.sh" and "postknoppix.sh" can be used to
prepare special devices (like the ZIP-drive)
- a new readme in german AND english
- some bugfixes (especially thanks to Peter Moestl)
- new bootparameter "nohome" to avoid the use of the persistent home
(useful if the knoppix.sh was burned on CD)
- the direct mount option is no longer supported (was just problematic!)