It's either something wrong with your LILO config, don't know what since I haven't used Lilo in over a year.
It's probably that the ATA drivers in the kernel aren't properly installed.
Any disk-type driver should not be M, unless you know exactely what you are doing. Make sure they are compiled right into the kernel
And make sure that the appropriate filesystems are also compiled into the kernel (not modules)
That probably will fix it
Also check the roo= in lilo and make sure it's exactely the same as the one for the other kenel