What is the location of the directory of C header files that match your running
kernel? [/usr/src/linux/include]

Which path is now necessary?
(You have to reply with the actual path used by your distro - VM set-up does not necessarily know this as many distros are different )
From memory, for this Knoppix 5.1(.1) it is:

/usr/src/linux-headers-2.6.19/include

(To be sure, open KPackage, find package linux-headers-2.6.19 and look at the File List tab )

Good luck