I managed to fix the problem as turned out to be very stupid.
I was pointing lolo to my /boot partition instead of rootfs partition.
Once adjusted lilo.conf my box booted just fine
And thank yuu very much sycamorex for your great advice! I will reinstall the system today to get everything goingon ext4 and I`ll also mount /swap, /var, /home and /tmp on my samsung drive so I`ll only have /boot and / on my ssd