I remember this from when I was working on remastering Feather Linux (Knoppix based) and it's a cool option.
You can copy the modules and directories over to a hdd and not copy the extracted file system like I describe in the howto. It would be like when you install it to a USB key, but I have no idea how to boot SLAX from a ISO file. I wouldn't be supprised if it's possible though, mabye you should ask in the SLAX forums too.