I don't know how to fix it, but I can tell you what it means. There is a nearly 50 MB file on the CD called KNOPPIX that (IIRC) resides in a directory also called KNOPPIX that is in the root directory of the CD. (You should be able to see this file on the CD from a booted computer running any OS. You might want to take a look for your own info and to make sure I got the location correct.) This file contains the compressed filesystem DSL uses. So w/o it, not much can happen. In the boot process, if not told differently, DSL will look for this file, first on the CD and then on each of your hard drive partitions. It should have found it on the CD, but for some reason did not.
The only thing I can think of is perhaps the bootloader could read the CD, but the kernel is incapable of doing so. (I.e. you don't have a driver for it.)
IIRC correctly,
mount is one of the few commands you can run from that "very limited shell." You can try manually mounting the CD and seeing what happens. (First, use the
mount command w/o any parameters to see if it is already mounted.) Beyond that and using another system to examine the CD and make sure the file is really there (i.e. that the CD didn't get mangled when you burned it), I don't know what to suggest.