Not true...you could use unionfs,toram,and /config option for persistant home directory and do apt-get upgrades and install software from the repositories.
toram just loads the cd to ram for faster operation but I would reccommend 1g of ram or more to use and thus free up a cd drive.
makeing a persistant home directory will allow things to be saved at reboot.
unionfs makes the cd live and ready for software installs and what not.
But if you need to upgrade the kernel and have knoppix on hard drive already there are plenty of how to's across the net and at the knoppix forums....its quite easy by the way.