Genkernel, if used with --lvm, includes the busybox executable in its generated initramfs, but it misses to install its symlinks (ls -> busybox, for example), rendering created images unusable.
(tested with 3.4.9_pre6 in an Ubuntu chroot)
My latest x86 minimal 2007.1 pre-release livecd build has a kernel created with 3.4.9_pre9 and uses --lvm, and the busybox symlinks are there. Can you try to reproduce with _pre9?
If you use LVM, you should use _pre9-r1, so that LVM is properly built in the initramfs. Also, the symlinks are created in the initramfs when "busybox --install -s" is called inside linuxrc, you can't just unpack and expect them to exist.
Sounds like INVALID to me :P