Lately, my favorite Linux live-cd is SLAX. I run Gentoo on my main system, but a live-cd is useful in a number of situations. I've used KNOPPIX in the past, but it is getting to be a little heavy for my tastes, with versions now taking up the better part of a DVD. SLAX is nice and small, just under 200Mb currently - quicker to download and burn in those "I need a live-cd NOW" situations. Since I'm more interested in having a toolkit that I can use in certain situations as the need arises, rather than a fullblown system for day to day use, the smaller live-cds fit my needs better.
Ironically, my primary use of Linux live-cds over the past few years has been as a tool to rescue Windows systems that have become unbootable, either from spyware/viruses, hardware failures (thanks Dell! Twice!), or random acts of Windows weirdness. In those sitations, I will boot from the SLAX CD, copy the Windows data across the network to my primary Linux box via samba, wipe the disk with dd (so the Windows installer doesn't try to "repair" the bad system), then rebuild and copy the data back over samba.
This weekend we decided to clear out a closet of old computers and donate them to charity. The problem was that most of them had been used in a family business and contained confidential client data that we didn't want to ship out to the world. Some of the machines were bootable, some were not, but clearly, booting into Windows and trying to delete the files from a running system was a bad idea (first, it is hard to know you've gotten everything, and secondly you can't wipe the entire system while it is running). So, time to boot into a SLAX live-cd.