Aside from software problems (unable to boot, no filesystem drivers, doesn't recognize your sound card...), is it possible that a imporperly configured kernel could cause physical hardware damage?

"No."

(At least for all the purposes of this discussion ...) the answer is: "No."

The kernel, after all, is [just] "software." Software that's supposed to know how to "push the hardware latches (of this particular hardware ...) and read the hardware status-indicators (ditto ...)" ...

... and that, basically, "will be scro-o-o-d ... but nothing(!) more ..." if it can't.

- - - - -

The greater concern, for you (if you are using "a distro," is that you are now "stepping outside of" anything that "the hard-working distro-writers who are tirelessly fighting un-mentioned battles on your behalf" could possibly have known of.

Basically:

• "either they must bear full responsibility for 'whatever happens'" ...
• ... as they are, "amazingly enough," prepared to do! ...
• ... or (and you knew that this was coming, didn't you?) ...
• ... "you are on your own."

The task of any "distro publisher" is to reliably manage the state of: "an unknown number of unknown systems running on totally-unforseen hardware."

... "therefore, it pays not to make their jobs difficult."

Yes. But not because of improperly configured kernel. But because of new kernel code. It has happened a few times. Those who tested first got this catastrophe.

I've tried to compile a kernel a few times over the last few years (really just two or three times, but after I failed I'd go do something else) and I finally got one that runs properly today with wifi support and everything! I had to get the proprietary radeon drivers afterwards to get my graphics working properly, but it feels good to actually get a home compiled kernel up and running from source. Now, I have the ability to really play with some kernel hacking since I have the same code running live that I have source cloned to my machine. Woo hoo!