1) the "LI" is a common problem. It's a LILO installation problem. boot from the diskette and open /etc/lilo.conf in your favorite text editor. search for a line wich says "boot=/dev/hda1" or something alike and change it to "boot=/dev/hda". run /sbin/lilo to install the LILO bootloader correctly
2) hmmm can't anwser this...
3) try blackbox or fluxbox, those two are really lightweight
.-=~ iluvatar ~=-.