I'm afraid a 2 Gig hd is too small to install knoppix on. You need a larger hd or a smaller distro like: http://www.damnsmalllinux.org/
There's also a way to copy knoppix to hd called poor mans install and boot from it but I haven't tried it and the docs are down so you need to search this site for it.

EDIT: A somewhat lenghty discussion about installing without uncompressing the image: http://www.knoppix.net/forum/viewtopic.php?t=11796