I suspect the kernel is too big to fit on a single floppy. One workaround is to install LILO to the partition instead of MBR, then use Smart Boot Manager: http://btmgr.sourceforge.net
on a floppy to boot the system.
The kernel doesn't go on a LILO boot floppy. I used to use LILO floppies all the time on my older desktop (my only computer that still has a floppy drive). This included various Vectors all the way to VL 5.8 Standard.
Frequently I couldn't make a LILO floppy during the installation of VectorLinux. I would use the installation CD to boot and then I could run LILO successfully to create a LILO floppy.
Once I had to format a floppy under Linux. Once I did that I was able to install LILO to the floppy through VASM.