I have the same problem. Running lilo by hand works just as well as the script doing it.
> I am _not_ a lilo expert but I have checked the lilo manual and I can only > come up with two things. 1) wipe out the MBR on hda with DOS fdisk > /MBR and run lilo by hand again. 2) I don't use that install= line > that you have and the manual seems to show examples only using > install= for a floppy. (???)