What advantage would I have mounting hda3 onto /KnopMyth and hda1 onto /Knopp. Would this make it easier to access files on one system (Knoppix, say) when using the other system (KnopMyth)?
Exactly.
If I were to use a 32Mb hda1, how would I set that up? Just make the partition, install lilo there and make extended partitions for the rest of my setup?
You'd use it as your /boot, and specify it as boot in lilo.conf as well.
Is there any +/- to using a primary vs an extended partition for anything that I have proposed?
You can only have 4 primary partitions at most, and some OS's can only install and boot from a PP. I was suggesting not using them all so you can possibly install another OS later on - provided not all you HD space has been allocated. If you don't think you'll need that, your original scheme was just fine, and will probably work better with the knoppix installer: no need to let it know about non-standard partitioning; just let it install to hda1 and move /home afterwards.