bt~#nano /etc/lilo.conf

Now I like to delete all the bulls**t in the lilo config file so here is what mine would look like. (remember to set your own VGA accordingly )

lba32
boot /dev/sda
prompt
timeout=60
change-rules
reset
vga=791
image = /boot/vmlinuz
root = /dev/sda3
label = backtrack3_final

Excellent. Save that and then execute lilo (I like to use the verbose flag)
bt~#lilo -v

after that exit your chroot enviorment
bt/~exit