I do this all the time.

Boot knoppix, mount your 700 meg hard drive PARTITION. Making this partition any bigger is useless is the partition will be mounted RO. Let's call the hdc1

mount /dev/hdc1 /mnt/hdc1 -o rw (Or whatever other options you may or may not need)
cd /mnt/hdc1
mkdir KNOPPIX
cd KNOPPIX
cp /cdrom/KNOPPIX/KNOPPIX ./KNOPPIX
reboot
At the boot prompt, type 'knoppix fromhd' Knoppix will look on all partitions for it's 700meg compress KNOPPIX image, and boot that.

Hope this helps.

- Ambrose