This panic is because your root filesystem cannot be found. Most likely this is because GRUB is pointing to the wrong place. You are going to have to fix this from the live CD.

First of all boot in to the live CD then mount your root filesystem. To do this:
Code:
sudo mkdir /media/target
sudo mount -t ext3 /dev/sdxx /media/target
..where /dev/sdxx is the device node for your root filesystem (if you know it). If you need help identifying it, please post the output of:
Code:
sudo fdisk -l
...and I might be able to help.

Once the root filesystem is mounted, you'll need to open up your /boot/grub/menu.lst (which will be /media/target/boot/grub/menu.lst). There will be a line beginning with '# kopt', which will look something like this:
Code:
# kopt=root=UUID=4a810ba8-bfc5-4a54-b9f3-e7588805b872 ro
...this is an example from my menu.lst. It might also use device node instead of UUID, like this:
Code:
# kopt=root=/dev/sda1 ro
Basically, the 'root=' bit needs to point to your root filesystem. You can use the device node or UUID (like in the 2 examples I gave). To find the UUID's of all your volumes, type this in a terminal:
Code:
sudo blkid
If you are unsure about the output, then post it here.

Note also that the 'root=' option should also point to the root filesystem as identified in your /etc/fstab (or, /media/target/etc/fstab from the live CD). Please have a look in your fstab and make sure that they both match up. Again, if you are unsure, post your fstab here along with your menu.lst and the output of 'sudo blkid'.

Once you have fixed your menu.lst, then you need to run update-grub (from inside your mounted environment). To do this:
Code:
sudo chroot /media/target
sudo update-grub