From the looks of the grub.conf file you did not compile the kernel correctly for the Red Hat family. The clue (bzImage);
kernel /bzImage.matrix.26aug2006 ro root=/dev/hda1 init=3
FYI: this init=3 is not correct a simple space followed by the number 3 works
With the Red Hat family the steps in order are(thinking back to RHL9);
Yes this differs from the Kernel Rebuild Guide a bit, but they are the proper steps to use. Please review;
FYI: Red Hat quit supporting RHL9 well over two years ago. Fedora Legacy is ending any support on October 1, 2006 please consider this as basically a dead OS.
If nothing else please bring the system current, learn how to install and use apt and/or yum for this; http://www.fedoralegacy.org/