So, until now, you have been running on the kernel and associated file system that was delivered with your Plug?
If so, that is a very old kernel and FS. Mine came with 126.96.36.199. I'm not even sure if the newest kernel is compatible with that version of the FS.
The NAND on the Plug is divided into several partitions: There are separate areas allocated for the Uboot, the Uboot environment, and the kernel. The rest is normally allocated for the root file system. The size and start points of each partition are indicated by the 'mdtparts' definition in the Uboot environment. The kernel defines the /dev/mdt* entries based on this, and the kernel you tried to write was thus written to a specific part of the NAND based on what is defined in mdtparts. I believe, at some point, the area allocated for the kernel was expanded, due to the new kernels requiring more space, with the extra space taken from the root file system. This is probably why your new kernel didn't fit.
So, does it boot? I would suspect not. If not, my advice: Grab the latest SheevaPlug Installer
and get yourself back to a known-state bootable system. The Installer will remap the NAND allocations to currently acceptable sizes. It will also provide a later version of the root file system and a more recent kernel. Once you do this, you can then upgrade your kernel to the latest one available if you desire.
If you have stuff in your root file system you need to save before running the installer, then you'll have to use an alternate method of booting your Plug -- either from an SDcard, or USB drive, or network boot -- to retrieve it first. Once you run the Sheeva Installer, everything in the NAND will be overwritten with a fresh copy of the Uboot and OS.