Your LILO issue has nothing to do with Networking and should be posted in a different thread in a different forum, most likely the HDD install forum.

There's a 64 bit version of Knoppix 3.4? Where did you find that? I've seen a newer 64 bit version, but not a 3.4 version. Sevearl things that you might want to look at for the serial modem part of your problem: do you have a problem when running from a CD (there are often networking problems after trying to "install" Knoppix to hard disk)? Does the modem problem occur with a normal version of Knoppix from CD, or only with this non-standard 64 bit remaster? If you can't get the modem working when running from a CD then focus on that and don't complicate it with the hard disk install, if it works fine from CD then it's important to know that.

I don't use a dial-up modem so I don't think I can be much help there, but I couldn't quite follow what command you used to try to configure the system. Are you using the PPPoE configuration?