Can I ask why you want/need to change the default location of your new compressed filesystem( /KNOPPIX/KNOPPIX )? When you burn the new CD with your customizations, you can still use the same file naming and location. Unless there is some need/advangage to using some other. Which might be do-able via cheatcodes like "bootfrom=/dev/cdrom/KNOPPIX/CUSTOM" maybe????

Now, regarding your need to run a custom script during boot. There's a nice trick already built into Knoppix and that is the use of the knoppix.sh script that's kicked off when you use the "myconfig=....." cheatcode. Just build your script, call it knoppix.sh and then put it in the root of your custom CDROM and then boot the CD with the cheatcode "myconfig=/dev/cdrom". IIRC, there might even be an automatic search for knoppix.sh at the root of the CDROM but this is something in the corner of my head which is 1-2 years old. Easy enough to try just since it doesn't really require a full remastering and to use the cheatcode you need to put it on the cd anyways.

BTW, there is another cheatcode called "tohd=" and I think there's another one which might simplify your auto-install requirement. So, alot of what you are looking for might be possible by using cheatcodes during the boot process. Once you get those hammered out, all you need to do is change /boot/isolinux/isolinux.cfg to default with those cheatcodes and the task is done.