I am giving you details about my building process (using T2 SDE) for embedded target:
1. I downloaded t2-7.0-rc2.tar.bz2 and extract it in my root directory.
2. # cd t2-7.0-rc2
3 # ./script/Config -cfg new
4 then I choose:
- Target Distribution
(embedded) Generic Embedded
-Target Style
(dietlibc) diet libc (less is more)

-Architecture, CPU and Optimisation
(x86) x86 (AMD, Intel, VIA and compatible)
(i486) Optimised for intel 486
(isolinux) Use Syslinux/isolinux as CD loader

5 # ./script/Build-Target -cfg new
6. Some packages are failed to build, I removed those from config/new/package file. (i.e. libtool, cpio, coreutils, findutils, ppp, zile, popt, util-linux, psmisc. tftp-hpa, clockspeed) and add cramfs.
and continue rerun ./script/Build-Target -cfg new
7. Build process completed.
8. # dd if=/dev/zero of=/boot/initrd bs=1M count=20
9. # mke2fs -F -m 0 -b 1024 /boot/initrd
10. # mkdir /mnt/test
11. # mount -t ext2 -o loop /boot/initrd /mnt/test
12 and copy the contents of /root/t2-7.0-rc2/build/new-7.0-rc2-embedded-x86-i486/TOOLCHAIN/rootfs into /mnt/test directory.
13. # umount /mnt/test
14. # gzip -9 /boot/initrd
15. initrd.gz file is created
16. I copied initrd.gz, vmlinuz (/root/t2-7.0-rc2/build/new-7.0-rc2-embedded-x86-i486/boot/vmlinuz_2.6.21.7-dist) and syslinux.cfg in Compact Flash.
17. # syslinux /dev/sdb1 (to make CF bootable).
18. syslinux.cfg contain:
default vmlinuz root=/dev/ram0 initrd=initrd.gz ide=nodma PMEDIA=ideflash PKEYS=us
19. when I boot my system with CF support. It ended with these errors:
No filesystem could mount root, tried: cramfs squashfs romfs
kernel panic - not syncing: VFS: Unable to mount root fs on unknown-block(1,0)