What I think is happening is when you run the command grub-install /dev/sda
, grub uses the /boot/grub/grub.conf from the current root system. Since you are using a live cd it will of course use the one from the live cd and not the one from the hard drive.
What you need to do is to chroot
into the root filesystem of the linux system, then install grub from there. that way it will point the mbr to the linux system to find the /boot/grub/grub.conf file.
The best way to do it would be to boot up with the knoppix dvd, it will automatically mount your drives, but best to dismount the drives and do it manually, since you have /boot and / filesystems on different partitions, we will place the whole OS under one directory for chrooting
doesn't matter where but I just like to place it under the /mnt directory:
mount -t auto /dev/hdb2 /mnt
mount -t auto /dev/hdb1 /mnt/boot