I got a similar result (dropped into the limited shell) when I had issues getting my RAM detected. Have no idea if this is your issue, but the FAQ entry below fixed it for me (obviously, substitute your actual system ram for the 128M).

Q: My system memory is not fully detected, or the computer hangs shortly after starting with the message "Panic: cannot mount root file system"!

A: Some boards apparently report the usable memory size incorrectly to the Linux kernel. Solution: specify the system memory size as an additional "knoppix" boot option. For example, for 128 Megabytes use

knoppix mem=128M

(Note: make certain an upper-case M is typed after the memory size!)