Thanks Blacksimon. I tried this with my 32GB key:
step #1
I typed in a terminal : "ssyslinux -if /dev/sde" but it complained sayiing: 'invalid media signature (not a fat system?)".
step #2
I then create a small FAT32 partition at the beginning of the key, with GParted.
and typed "syslinux -if /dev/sde1". The command was accepted.
step #3
I formated the whole key in FAT32 with GParted and added the boot flag.
step #4
Next I run knoppix installer with the 'p' option and again received the infamous error message that the "overlay is too small".
So no joy so far.

Note - Not better if the whole key was formated in FAT32 before doing step #1.