The installer sets up /etc/lilo.conf pointing to the full path of the kernel image instead of using the /boot/vmlinuz symlink. The kernel RPMs however only upgrade the symlink, resulting in updated kernels leading to a failed system since the old kernel rpm gets removed when during a -U.
Refer to the kernel-HOWTO for the correct instructions for upgrading the kernel. In the process of upgrading the kernel, you will want to modify the /etc/lilo.conf file to point to the new kernel image as well as to the old kernel image so that you can safely recover if there are problems with the new kernel.