Hi,
I'm all for remastering Knoppix, but have you considered
Damn Small Linux, a.k.a. DSL?
See
http://www.damnsmalllinux.org/

This uses FluxBox Windows manager and would appear to me to give you most of what you want.
At my local LUG a couple of months ago we installed DSL on a box with a 1GB hard drive and the person went away with a faster running machine with 950 Mb of space left on the hard drive. When they came in they had 50 Mb left following a base install of another Linux distro.
Regards,
Mark