I don't know much about cloop, but I believe that's what knoppix uses. But, 
there is a varient of the squashfs kernel patch with lzma, aka 7-zip. 7-zip 
is 5-15% better compression than bzip2. I'm not sure about the performance 
penalty though. Generic squashfs has slighly better compression than cloop, 
an squashfs has better performance, so it looks like the best choice.. 
according to:
http://kerneltrap.org/files/PERFORMANCE.README.txt
also see:
http://kerneltrap.org/node/4410

robert
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