I appreciate the thought that has gone into this, and I would add my voice to those who see the utility of a minimalist knoppix. My only additional suggestion is to modularize the desktop as well.

The real value inherent in knoppix lends itself to this kind of modularity (squashfs vs cloop notwithstanding). What is the memory overhead for adding cloops?

As far as standard vs roll-your-own modules, I think that those who made cleverly implemented RYO modules could make them available to others. In other words the best of both (and satisfying the anarchist in me, no rules).