I had the same error message, so I suppose, it's the same problem.
I solved it by using initramfs instead of initrd.
I read the previous error messages, befor "modprobe: FATAL: Could not load /lib/modules". I saw, that this error might have occured because the file system couldn't be mounted.
(this is a german article, in the English wikipedia, this article is missing) I found, that initrd only works, if the drivers for the file system are fix compiled into the kernel. Initrd will not work, if the needed drivers are compiled as modules - and compiling as modules is the standard in most kernels, I learnt.
Initramfs is the successor of initrd. It works independently from this question. So I installed the debian-package "inintramfs-tools".
Within the folder, where my kernel-sources are (don't know, if this is nessecary), I did
update-inintramfs -c -k 2.6.20
-c says: create (a inintramfs)
-k XYZ says, for whitch Kernel the initramfs should be created.
(Note: There is an other tool named "mkinintramfs". I didn't use it, because it's recommended only for advanced users. "update-inintramfs" is recommended for people like I am.)
Then, I found a new file named "initrd.img-2.6.20" in /boot/.
into my file /boot/grub/menu.1st
- and it worked.