OK, I was curious about trying out a 2.6 kernel...
I apt-get'd the kernel-source and kernel-image-2.6-k7
(figuring I could miss out on the config and compile)

I said no to all the mods to lilo and edited it by hand.
The kernel-image includes an initrd image which it puts in /boot although its not compressed to a .gz.

I set this in lilo as the initrd... etc. ran lilo and no errors

Is this just to simplistic, do I need to compile my own kernel or should this work ??? does the initrd image need to be gz'd with makeinitrd OR can I just use the uncompressed one.

Ive yet to try it since I was locked into a bittorrent for the Knoppix34 all last night.