I installed Knoppix 4.02 to my external USB HDD and here follows a summary of my experiences....

I used a multi-user system with hardware detection (I think it is called "beginner")

The install completed sucessfully

The system did not boot from the drive though. Grub had to be manually installed (using the grub shell). menu.lst had to be edit edit to change the root to (hd0,0) rather than (hd2,0) due to the way the BIOS boots USB drives.

I then booted into a kernel panic. The initrd was edited to include all usb host drivers. (The panic might have been due to an issue knoppix 4.02 had with my PC).

It then booted, while giving a "FATAL" error about not being able to find sd_mod. Pressing enter had the boot process continuing....

Moving to a different PC I was shocked to see that the hardware detection did not work correctly. This was fixed by replacing knoppix-hd-autoconfig with knoppix-autoconfig. With all these changes knoppix boot and runs fine (except for the sd_mod issue mentioned)

I hope you can learn from my experience and improve the installer in the future, maybe adding a option for an USB install.