Knoppix Terminal Server - why do some version of Knoppix not work?

I am using the KTS on a HD install of Knoppix.
I've found that the 7/25/03 version works if I either mount the physical CD under /cdrom (so that I get /cdrom/KNOPPIX/KNOPPIX being the 700M+ file) or if I copy the 700M+ file to /cdrom/KNOPPIX. So far, so good.

However, with the 11/19/03 version, it only works with the physical CD. If I put the file there (on the hard disk), I get the following error message (on the client machine - after it has NFS mounted and found /cdrom/KNOPPIX/KNOPPIX):

cloop: Initializing cloop v1.02
cloop: /cdrom/KNOPPIX/KNOPPIX: 29973 blocks, 65536 bytes/block, largest block is 0 bytes
cloop: out of memory for compressed buffer 0
/modules/cloop.o: init_module:
Hint: ...

(and then a few more error message leading up to: Can't find KNOPPIX filesystem, sorry.)

As I said, the really funny thing is that this works with the physical CD mounted, but fails with a file. And, as noted, it works either way, with the 7/25/03 version.

Any ideas?