Alright, thank you for the information. I had attempted the same steps as described by blacksimon prior to my first post (which lead to my posting in the first place) and am not presented with

5) ok at warning message all data will erase on usb. I want.

In my case I was given an error at that point that my overlay was too small (less than 400MB). I have tried with an 8GB fat32 partition (let me state here again that the drive in question is a verbatim tuff 'n' tiny 8GB thumb drive) and that failed with that message. I then tried a 2GB fat32 and a 6GB ext2 partition. Failed. I then tried 2GB fat32 and 6GB ext4. Failed. I then checked the forum and saw this thread and tried a 2GB fat32 and 6GB ReiserFS. Failed. Then I tried with a 2GB fat32 and left the rest of the drive unpartitioned. Failed. I then tried all of the above with the second partition named "live-rw" (thinking maybe knoppix is possibly now incorporating debian live's startup script). Failed. This is what I did earlier before my first post. It sounds to me, from blacksimon's post, I should not have needed to touch the partitions in anyway. I kind of figured that was how this should have worked. So.... is this function just "too" experimental? If I missed something obvious please, please point it out. In the mean time I am now home so I will try again from my home PC instead of my work PC and see if I come up with any other result.

PS
I did try before I gave up entirely using the normal install or the "i" option instead of "p" and the install worked no problem and the USB booted into knoppix as expected.