I have booted Knoppix 3.7 off my hard drive on a Windows XP SP1 laptop and a Windows NT4 desktop, both of which use NTFS. Therefore it can be done!
My NT4 option is nearest to what you are trying to do. However you do not use the ISO, but the Knoppix file you find in the \KNOPPIX directory when you burn the ISO to a CD.
When you burn the CD you will find a file simply called KNOPPIX in the directory \KNOPPIX of the CD.
Using Windows create a directory c:\KNOPPIX on your hard drive and copy the file from your CD to it.
Now when you boot up from the (burnt) CD you type:
knoppix26 bootfrom=/dev/hda1
add any other cheatcodes you might want AFTER the bootfrom cheatcode. The command above uses the 2.6 kernel. The 2.4 kernel never worked on NT4 with Knoppix 3.4 so I have not tried with later versions!
N.B. The capitalisation of the names is important.
If you really want to use the ISO you have to do what I have done on my laptop. This is a Poor Mans Install (PMI) for NTFS, which was developed by minds greater than myself after a long and tortuous struggle. However, it was well worth it because the result is brilliant!
Have a look here:
http://www.knoppix.net/wiki/Poor_Mans_Install
This gives you some introductory notes on the process. Follow the link to method 2 Win Partition to see what to do.
You are going to have to download Ruymbeke's files (9MB if I remember rightly) but once things are set up you will love being able to boot you PC into Knoppix without the need of the cd-rom.
Hope that helps.
ICPUG