Your first error means the Loop file system is not installed. Try 'insmod loop' and see if the compile work again. The initial ram disk is actually a loop file system containing a subset of your root directory. Enough to boot with. Things like modules and the init executable, etc. are in the initrd. (by the way, for those who are curious, a loop filesystem is a complete filesystem contained within a file residing on another filesystem, complete with directories and files, etc.)
Usually when the initrd is created (make install), the loopfs driver is loaded automatically. If it doesnt work, then perhaps you didn't have that module selected in the kernel config.
The second error is probably caused by the first. On booting, the root filesystem starts off as your initial ramdisk, then later in the boot process, the root filesystem switches from the initrd to the actual root directory on your harddrive. If the initrd was not created correctly from the above step, your kernel panic will always appear.