Windows uses the 'other=' label and not 'image='
Below is a copy of my lilo.conf for example. The windows entries are at the bottom.
# LILO configuration file
# generated by 'liloconfig'
#
# Start LILO global section
lba32 # Allow booting past 1024th cylinder with a recent BIOS
boot = /dev/hda
message = /boot/boot_message.txt
prompt
timeout = 1200
# Override dangerous defaults that rewrite the partition table:
change-rules
reset
# Normal VGA console
vga = normal
# End LILO global section
# Windows bootable partition config begins
#other = /dev/hda2
#label = Windows
#table = /dev/hda
# Windows bootable partition config ends
# Linux bootable partition config begins
image = /boot/vmlinuz
root = /dev/hda6
label = Linux
read-only
# Linux bootable partition config ends
# Windows 2000
other = /dev/hda2
table = /dev/hda
label = win-2k
# Windows XP
other = /dev/hda3
table = /dev/hda
label = win-XP
