With the current KNOPPIX, it is close to impossible. KNOPPIX comes with the 2.4 kernel ntfs driver which has problem with cloop(I haven't tested the latest Sept one) which is what you see. I almost have it working(but I don't know why it is so). What I have tested is to instead of putting the big KNOPPIX on NTFS, I put the whole ISO image on NTFS and changed the linuxrc to do something like this :

mount /dev/hda1 /host
mount /host/knoppix.iso /knoppix_iso -o loop
insmod cloop.o file=/knoppix_iso/KNOPPIX/KNOPPIX

With this modification, I can get to the command prompt(everything was loading fine including the hardware detection etc.) but stuck when I startx. So there is still something wrong in the file system. Klaus has changed the cloop driver coding lately which may make the above work.

An alternative which I run before is to build my own kernel with the ntfs 2.x driver. If you download the sample miniroot.gz from the above site(which is mine too), you may notice that I have changed the linuxrc to load(and mount) my own kernel tree.