This idea is one I have been working on. Being new to Linux, I am slow because I have so much to learn, I can hardly keep up with the forums let alone contribute innovations of my own.

Some thoughts so far:

Compact Flash much cheaper than USB Key.

CF USB2.0 Adaptor and 30X flash, best prices from http://www.insidecomputer.com

Don't use older 1.1 version of USB, or older slower Flash cards.

So far I have received flash formatted with FAT for Windows, and not tried re-partitioning to new file system(s). Complex subject, that.

Recommend for first method, put /Knoppix directory in FAT already on flash. Boot from floppy, or CD which is made to have no /knoppix directory.

Recommend for second method, boot up into text mode Windows, using boot image from a Windows rescue disk. Use loadlin to start Knoppix.
See instructions elsewhere on this forum. This should allow very fast boot without modifying flash partitioning or file format.

Anything better you can figure out, please let me know, as I am just a newbie!