first thing is that your lilo.conf should read " boot = /dev/hda " , so it's installed in the mbr. ( i don't know if that's the cause of the error, but you could change it and try again ).
furthermore, as you don't have to much disk-space, you don't need a 1 Gb
swap-part. . in your case a swap of 128 Mb will do . ( 2 x mem. )
and if you ever re-install the whole, ext3- or reiser-filesystem are better then the ext2-fs.
and i don't know grub ( yet ) , but i rely on lilo, it should work.