To remove LILO and have Windows installed on the other partition, USE a DOS boot disk with FDISK on it.

At the command prompt of DOS, type in - FDISK/MBR <-- this removes MBR program (LILO in this case).

I would suggest using a SHAREWARE called MRBOOTER (Masterbooter.com) <-- it is great in that its intuitive, SMALL, and clean. The shareware allows you to use it indefinitely except only 3 OS. The Registered allows you to use with 6 OS.