Knoppix, for example: how does it "discover" hardware, and load the right driver?

Knoppix, as an example, has a huge driver base. It can find many different types of hardware & make them work. Not always the best/most efficient driver/config, but usually works.

That said, there's no rule as to what a live distro will & won't support - it's all up to the distro itself & what the maintainers have decided to include.

edit: just re-read your question & don't think I answered it. Are you looking for the actual methods they use to find hardware? Are you thinking about implementing something yourself or are you just trying to debug an OS on a machine where Knoppix finds something and this OS doesn't?

I'm not real comfortable with my knowledge on this but udev and hotplug seem to be how the drivers are automatically set and implemented whereas kudzu or hwsetup (hwtools, hwinfo?) discover the devices. Knoppix uses hwsetup and udev I believe.

Sorry for the inaccuracy that that probably contains. lspci and dmesg from the CLI will tell you about hardware

Well, I'm by no means qualified to put together a distro, but I'd like to set up something like a live boot, but that doesn't "forget" everything to the abyss of dismounted ramdrives. In other words my installation on, say, an external hard drive or flash drive, would:

1) recognize and enable sound, ethernet, video, etc. from different machines, the way Knoppix does

2) allow and retain new or installed packages (like an update of open office, or maybe ipvsadm or whatever) the way Knoppix doesn't

3) save user created documents the way Knoppix doesn't.

Perhaps the above suggestions might be part of a solution?

Thanks for the replies.

A program like mplayer uses text files for configuration. Knoppix decompresses on the fly, into memory, but there's no reason you couldn't have files on your storage device that you use. Remastering Knoppix would let you start with something more customized and without any apps you don't want.
One of the ways you can install Knoppix retains its hardware recognition (at the expense of a longer boot time than would otherwise be necessary). I wonder if this would be portable across multiple machines (as long as they all had the same CPU).