Have you read the sticky on top of this Hdd Install section: http://www.knoppix.net/forum/viewtopic.php?t=3311
I don't think notepad will show any characters in bootsect.lnx, haven't checked though.
Try with cfdisk /dev/hdb (notice dev instead of mnt)
Still I believe the easiest way to partition for linux is to pop in a Mandrake install CD, prepare the partitions and abort the installation just to continue with the distro of choise. (oh am I going to get flamed for that one )

Dual-booting with Lilo in the MBR isn't usually a problem, if it borks up you can restore your MBR. All in the sticky.