You can delete the line from C:\boot.ini. It won't have any effect now anyway.
Do you have some sort of BIOS protection on the MBR?

Try running lilo again with:
- Boot cd
- open a terminal
- type: mount /dev/hdb5 /mnt/hdb5
- type: chroot /mnt/hdb5/ /sbin/lilo -v
- type: ctrl-d (to exit from chroot)
- reboot

Could you post from your hd-install /etc/lilo.conf?