I have had this problem for over a year. I just succeeded in installing Knoppix 4.0.2. The solution for me was to install the GRUB loader.

My computer is a Microstar International MSI865GV Hetis (Intel 865GV chipset) with a 2.8GHz Pentium 4. I put a 160GB Seagate SATA drive and a Sony DRU-530A DVD writer in it. I have been running Windows XP and Knoppix 3.4 with the 2.4 kernel since I bought it in May of last year.

I installed Knoppix 4.0.2 to my hard disk and tried to boot resulting in the kernel panic. I tried a lot of command line options without success. Searching on the web I found some suggestions for changes to make to /boot/grub/menu.lst. I had Knoppix write the master boot record when it installed and the boot menu looked like what was in /etc/lilo.conf. There was a /boot/grub directory but no menu.lst file so I decided to try creating one and installing the GRUB loader.

I first created a GRUB boot floppy to test out the idea. I booted Knoppix from CD and followed directions I found in a Linux Journal article at http://www.linuxjournal.com/article/4622. I had a floppy that had already been formatted for msdos. I opened a root window and ran the following commands:

mount -t msdos /dev/fd0 /floppy
mkdir -p /floppy/boot/grub
cp /boot/grub/stage* /floppy/boot/grub
grub
grub> root (fd0)
grub> setup (fd0)
grub> quit

I booted from the floppy and at the grub> prompt typed the following commands (/dev/sda1 is my Windows XP partition, /dev/sda2 Knoppix)
grub> root (hd0,1)
grub> kernel /boot/vmlinuz root=/dev/sda2 ro vga=791 lang=us
grub> boot
Knoppix booted successfully

In Knoppix I created /boot/grub/menu.lst containing the following text

default 0
timeout=5
title Knoppix 4.0.2 (2.6.12)
root (hd0,1)
kernel /boot/vmlinuz ro root=/dev/sda2 screen=1280x1024 depth=24 lang=us
initrd /boot/initrd.img-2.6.12
title Windows XP
rootnoverify (hd0,0)
makeactive
chainloader +1

The three lines after each title line are indented a couple spaces in the file but they aren't showing up in the preview.

I ran grub

grub
grub> root (hd0,1)
grub> setup (hd0)
grub> quit

I rebooted my machine and selected Knoppix. It booted up to the login screen.