Ok, turns out /usr/share/initscripts/default.rcS is actually a reference file of the default values (which I guess was changed at installation, in Ubuntu's case). /etc/default/rcS is the actual configuration file. And it looks like it worked! I changed UTC to equal "no" and made sure I entered an appropriate time zone when I booted (I use EST5EDT), and everyone was happy, including Tor.

Two problems though: first of all, boot is a little slower if you use the tz cheatcode with a persistent image (probably has something to do with access times), regardless of the value of UTC in /etc/default/rcS. The other problem is that there is now no simple way to get the old behavior back short of editing the file again and then rebooting (the utc cheatcode only changes the time zone).

Other than that, this seems to be the best way to get Knoppix to handle hardware clocks set by Windows.