I reinstalled knoppix on my laptop this morning. This time when presented with login screen KDM, I chose "console login" ( console login is an option under a menu at bottom of kdm login )
I then logged in as root on f1 (terminal 1)
#adduser newuser
answer prompts, when done I rebooted.
The new users showed up on kdm and I no longer have any problems with X, mouse or KDM.
I have no idea why adding users in X caused problems with KDM. Though now anytime I install knoppix I will just add users via adduser at CLI
Hope this may help someone in the future, better yet, I hope no one else had my problems with adding users causing KDM mouser cursor freezing
Peace,
Suley