The input/output error thingie with /sbin/init, seems to be a fairly common problem, not limited to knoppix only. The errors seem to be due to /sbin/init failed to open /dev/console for input/output, but nobody seems to have found out why it happens only to certain systems :-

http://www.linuxquestions.org/questi...-error-397113/

Perhaps you can try to debug it by checking the permission of /dev/console and also do some chmod, when you run it under debug mode.

Cheers.