Are you using chroot, i.e.:
# chroot <mount point for partition where lilo is located>
# /sbin/lilo -v
Actually, I've noticed this not working as well, even in a chroot environment in knoppix 3.3 but it used to work fine in 3.2. You could try the same trick with the partimage rescue cd:
Other things to try with knoppix 3.3 - setting a root password in a terminal(Ctrl-Alt-F1), su to root with new password, unmounting then remounting the relevant partition and then do the chroot thing.