I would just like to say I am having the exact same issue Febrile is
describing. Boots OK without persistence and does not boot with
persistence.

I can also confirm that this occurs with knoppix 6 as well. When I
create a persitent img file it no longer booted. I booted from the CD
then deleted the file, and bam, the usb drive booted again.

If there is any workaround please let me know.

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casper-rw file not detected due to improper use of fstype
https://bugs.launchpad.net/bugs/365853
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