Here is a link for HD installation: http://www.knoppix.net/docs/index.php/HdInstallHowTo

Google for Grub or lilo setup or search for dual boot on this sites search function to be able to dual boot with Windows.
You can also say no to the installer when it asks to create a lilo configuration and have it make a boot floppy. Then you can use the floppy to boot knoppix ( your mbr will be left alone-not changed ) and you can boot windows by leaving the floppy out.
As far as the version choice I see no reason not to use the latest release unless you run into problems, and as to the kernel if the install goes correctly you should have the choice of booting either from the lilo menu-so you can try both. ( At least that's how my 3.5 dvd install works )
Hope this helps.