Yes, it IS possible to customize Knoppix; go to the LinuxTag forum (it's in German, but there's an English page). These guys have ALL KINDS of idea on how to streamline Knoppix, and they're willing to share. I haven't had time to play around with their ideas, but they make sense. The biggest thing would be removing all the app's you don't need or want; if you don't have a digital camera, why would you want an application that only allows you to use a digital camera? By expanding the Knoppix ISO to a Linux partition, you can remove (or add) applications. That's a pretty simplified explanation, but basically, that's what you do, and then you compress the applications, and create a new ISO and burn it; VOILA! a customized Knoppix.
BTW: I'm using Knoppix on my main box and my server; it auto-configured my LAN; WAY cool!!