You should have no problem there as I can see. The only thing is that if you want to have lilo as single bootloader it should go to hda. If you choose the linux partition hda2 you need to copy the bootsector to C:\ and put a line for it in C:\boot.ini . The installer should ask you where you want lilo and if you choose MBR it goes to hda.

These are the lines in lilo.conf that matter here:

boot=/dev/hda this line will make lilo go to the MBR instead of partition

root=/dev/hda2 here you probably had hdb1 before but it should automagically be your linux / partition when you install knoppix

other=/dev/hda1
label="WinXP" this is probably the same as you had before

PS: You might want to format the storage partition vfat so that both windows and linux can share it, although it means you need to defrag it now and then.