Did you add the madwifi module using make menuconfig (or xconfig or whatever)? You need to do that first if you want the module to be available after compiling your kernel (assuming that it is not already available). You can take a look here:
Guide to 2.6 kernel compile
If you already have the kernel-source and you don't care about having a deb logo on bootup, you can make things easy and skip to step 6. Just change 2.6.7 to 2.6.12 and ignore the steps about boot logo. Also skip all but the first part of step 9.
I got a lot of warning messages about signdedness the last couple times I recompiled also (2.6.11). But everything seems to be working fine. Not sure what the errors were about. Maybe someone here knows.
btw, step 9 takes care of your config issue.