Nice!
A quick comment: At the first running from the DVD, you might also open a terminal and run fdisk on the USB stick, deleting all partitions on it and then recreating one of, say 1GB, make it FAT32. Flash-installing from DVD to this partition will eventually crash with "No space left on device", but booting stuff and kernels will be in place before that. Next, you can create a second partition with fdisk, and it should be possible to just copy KNOPPIX to the new place, from /mnt-system/KNOPPIX. After copying, you can create KNOPPIX/knoppix-data.img as big as you like, and the medium permits, loop-mount and setup an ext2 file system on it. Which will then be used when you boot up the stick and use the fromhd cheatcode.