initrd hell

I have been running xebian 1.1.4. Booting off a xromwell loader with a xbox
that's been sofmodded. All seems well. I am using the fatx loopback install
on E.

However, now I want to upgrade the kernel.

I have been using the following procedure:
1. Compile install kernel with patches applied and using the /boot/config-
2.4.xx file.
2. Copy kernel to E overwriting vmlinuz.
3. Mount initrd and cp -r files into a different directory.
4. also cp the new loop.o module into the the dir.
5. run mkinitrd
6. copy over the new initrd to E overwriting the old one.
7. Reboot into the new kernel.

I am suspecting that I am missing a step that is causing the bootup to fail
in particular the initrd creation steps. I see the correct kernel booting up
and the initrd being loaded, the the bootup process fails.

Thanks for any help or pointers.