The new kernel is in /boot by the name bzImage.custom. In lilo.conf the delay is set at 50 (5 seconds).

Here is the output of lilo:

Added Linux *
Skipping /vmlinuz.old
Added Custom

which looks like a clean output.

I have had upto 5 custom kernel in other distributions in the lilo.conf succuessfully so this is not something new I am trying.

Today, I accidently hit the Shift key when the system was booting up. It was displaying "LILO 22.5.4" basically just waiting for the 5 seconds to expire... and voilla heres the lilo menu. I tried this a second time and it worked again.

Any more thoughts?