Have you made any more observations using squashfs with Knoppix? If there are no clear problems or potential drawbacks, I think, if only for the sake of uniformity, we should encourage the use of squashfs. My impression from what I have read is similar to your observation: In practice, the difference isn't that big, but having the necessary modules in the standard kernel makes things a bit easier.

I'd like to make a remastering now, with updated packages and using squasfs, to have an updated system with everything needed and a 4GB persistent image on a 8GB flash drive. Now I need 16..