I've got LTSP running from a HDD based Knoppix system and without mod'ing /etc/init.d/knoppix-terminalserver. I did this to get it to run:

1)copy the Knoppix CD to /cdrom
mkdir /cdromISO
mount -t iso9660 -o ro,loop=/dev/loop0 /pub/KNOPPIX_V3.3-2003-11-03-EN.iso /cdromISO
cp -a /cdromISO/* /cdrom
umount /cdromISO

2)tar up the /tmp/tftpboot directory on a system booted from the CD and copy the tar file to that LTSP system

3) start LTSP on the server
/etc/init.d/knoppix-terminalserver start

4) overwrite /tmp/tftpboot with the data from the previous tar file. You might have to edit /tmp/tftpboot/pxelinux.cfg/default to make sure the IP address is correct for your LTSP server. Also, I've added myconfig=scan to the boot parms so that every workstation will find and load a previously saved configuration if it exists. This is great for getting the printers all on the network. BTW, my thick clients have 4GB HDs with a swap partition and a ext2 partition for the saved config files.

5) you should now have a running LTSP from a HDD installed Knoppix/Debian system.

Now, Here is why I'm here:
I'm searching these threads because I currently have thick clients booting from one workstation( running LTSP as described above ) BUT I want to have my thick clients using kdm with yellowpages-like login validation from the LTSP system AND have the thick client NFS mount the users home directory from the LTSP system into the thick client filesystem. I'd also like to have user specific knoppix.sh files execute on the users login for managed user configuration.

This is what I get doing it this way:
1) my users get full hardware access to the thick client, sound, peripherials, etc
2) my users get updated systems by just updating the KNOPPIX image on the LTSP server
3) my users get persistant user home directories
4) I get to manage my users home directories and runtime environment as I see fit.
5) I get to swap out hardware without worrying about pre-configuring much of anything.

This does require more hardware at the client but even old 500MHz celerons are good enough for this.