Good day. I think that is not the issue of config. The task which
you are going to do seems interesting, but not easy.
So better start trying to compile linux from distros where
everything else works fine. And then as Mike said go ahead with
your own tests. However if you resist this way, then try next.
At least you have "Booting the kernel." message.
That should be from LILO not from the kernel. I think after decompression kernel does not start at all, or hangs anywhere.
So you have to dig code of LILO or kernel to see where is the
problem(put printks everywhere). (That is sure not from config).
Try also to boot with GRUB.