just got Knoppix & flashed to USB ... amazing! however, a couple of questions ...

[utu]

Also worse is that I have access to the C drive on the PC, so isnt it possible for any kind of malware to read and do things to and from c drive?

In addition to Capricorny's advice, I'd add the following:

1. To prevent your C-drive frome being automatically mounted,
Set your PCManFM preferences as follows:

PCManFM>Edit>Preferences>Volume Management>(un-check) 'Mount mountable volumes automatically.

That is UN-CHECK the mount volumes automatically preference.

2. If you use flash, also use NoScript or an equivalent script blocker.

3. Don't download any 'enclosure' from an unknown source, e-mail or otherwise.