well i will take a stab at this. if you have a separate boot partition on the drive say partition one. then your lilo.conf would have to have reference to the boot image being in this partition. so you should first make sure that the boot image is being put there and then you should make sure that lilo knows that your /boot and / are on separate partitions. personally i don't know how to do this. perhaps look at the distros which use lilo that you have got to work with this setup.
edit it could also be a problem with your root= string