You don't actually *have* to use an initrd, and the more variables you take out the equation, the easier it will be for you to diagnose where the actual problem lies.
If you really want to use the initrd, I believe you have to include whatever subversion kernel you are using after the -k parameter:
-k 126.96.36.199 (check /lib/modules to see what the directory actually is named).
I'd comment out the initrd entry in lilo, re-run lilo and see what happens. Be sure you included SATA support in your kernel, and as noted libsata is deprecated, check in the low-level drivers directory for your controller.