Okay, from what you're telling me, it looks like you've removed the drive with Linux on it, and are now trying to boot it. That doesn't make any sense.
If you keep all the drives in the PC, then LiLo should boot the Linux drive just fine. BTW did you install LiLo into the 40 GB drive, or the 60 GB drive? Which one is hda, hdb, etc..?