well you only have 7mb-ish of nand for the kernel so you are close to the edge.
lzma is easy just install "xz" for your linux distro and manually make the boot.img using the kernel zImage and an extracted ramdisk
here is a fun pkg for you to play with
extract it into a subdir (like in a "tmp" folder).
it has my current automation scripts perhaps you can find something useful.
what this does:
after the kernel build is complete (demo files included), you can run "buildboot" in the kernel directory and it calls my other scripts which basically make two versions of the kernel
1) my custom boot.img with my ramdisk that I use on my phone
2) the update.zip that you see on the xionia kernel thread
auto updates the message in the zip flashing process, auto update kernel/module, auto zip, auto sign.
autobuild ramdisk, auto-lzma compress it, auto boot.img
anyway have fun with it. maybe it will help somehow.
http://dl.dropbox.com/u/11516160/Optimus Test Files/zefie_kernel_dev_scripts_example.tar.xz