It could be due to a fault CD, try using a fresh cd and see.
Although unlikely, it could be a problem with the RAM, as it will try and create the root partition on the RAM itself. Try booting with the "knoppix mem=512M" option, it just may work.
BTW, you mentioned a problem with XServer earlier, was a different error coming up then? If so it seems to indicate a faulty cd.
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Hardware - Celeron 266 MHz, 128MB RAM, Intel i740 8MB RAM
Software - Slackware Linux 10.1; Archlinux 0.7; Windows 98 SE
Humanware - GS/CS C++ L+++ w b+++ DI+ D+ e
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