I experienced this exact same problem. Knoppix will not do more than 640x480 resolution. The answer seems to be in the bios. By default for some reason the video buffer is only 1 MB.

Go into the bios on the post startup screen by pressing F2

Open the integrated Devices menu.

Set the Primary Video Controller to OnBoard and the Onboard Video Buffer to 8 MB.

That fixed it for me.

Let me know if that helped.