dracut(?) problem

[Yioryos Asprobounitis]

On the XO-1 under F11-XO1/os10, I patched with unionfs and recompiled the 2.6.31_xo
kernel, to include unionfs and some other modules. 
Installed on the XO-1 with "make install". 
Then I made the initrd with "dracut initrd_name kenel_version" (dracut-olpc
v0.30) and fixed the simlinks in /boot. 
Everything looked good but rebooting resulted in a kernel panic with the attached message
(picture of the screen actually).

I do not really know if the problem is with the kernel or the initrd or both (the message
title can be misleading-just a guess) but the initrd is really huge, ~18MB compressed (!)
and the mount complains might be indicative.
Should I have added specific dracut command line options or change the (any) config file?

Sorry for asking here but I couldn't find any xo-dracut howto.
Thanks for any suggestions/pointers.