This may not be totally correct. http://www.knopper.net/knoppix/knoppix62-en.html
"Booting from Flash
In order to create a bootable USB-medium (memory flashdisk, SD-card, digital camera with USB connector, cellphone with microSD, ...), the program flash-knoppix can be started from a running Knoppix system. This program installs all needed Knoppix files onto the FAT-formatted flashdisk, and creates a boot record for it. Other files on the medium stay intact, since no repartitioning or formatting is done by flash-knoppix.
After having copied the system to flash, using the persistent Knoppix image (overlay feature), it is possible to also store files permanently in live mode. That way, personal settings and additionally installed programs survive a reboot."
To me this is still a live cd to usb sort of install. It is not a true install. It is the way I suggested in the first reply where the compressed files are copied and some persistence is added. It works for most people.