It seems you have gotten the USB stick to boot, but you don't seem to have set up a persistent disk image.
You need to do that, I think, to install necessary packages. I would use the CD, simply to have fewer potential packages conflicts when installing new packages.
I use the graphical synaptic version from the preferences menu. You can then install necessary packages, like locales. That package doesn't seem to be installed by default.

You can change the default language parameter on startup by editing /mnt-system/boot/syslinux/syslinux.cfg
Just start typing 'knoppix' as soon as you see the boot prompt - then you will have time to complete the command line.