sventrn,
I feel that I have a very similar problem to yours. I have a 1GB flashdrive with Knoppix installed on it. By "Installed" I mean that I can run: Knoppix fromhd=/dev/sda1. I have been tinkering on the subject for quite awhile. My goal is to be able to walk up to any computer that's BIOS supports USB booting and boot into knoppix through the flashdrive exclusively. At this point I have to use the Knoppix CD to boot and then type "Knoppix fromhd=/dev/sda1". Were you able to resolve your problem? Does anyone else have some links or ideas about how to make the USB drive bootable? "Bootable" might not be the right word. I have tried to use GRUB and LILO but don't understand how to use them. I'm not Knoppix fluent, but I know Windows pretty well. Is it possible to install Grub onto the /boot directory on the USB drive from Windows? Does GRUB really work in that syntax? ANY clues would be helpful. I want to avoid using anything else but the flashdrive at all costs. (But then again, I'm desperate!)

Troubleshooting Info:
USB is formatted to FAT
Windows XP already installed on harddrive