You have to supply the path to the kernel you want to use for your distribution with the KERNEL configuration variable. As an alternative, put the kernel into the directory src/kernel. The name of the kernel is not relevant, as long as there are no other files with the exception of the files "Makefile" and "README" in the directory.
The kernel needs to supports as a minimum the filesystem type of your (initial) ramdisk (minix or ext2), initrd support (if you use lilo or syslinux), ramdisk support (in the block device section).
Note that a stock kernel from any of the major distributions is not really a good choice for a special purpose distribution. If you don't know how to configure and compile your own kernel, you should probably not be using GENDIST.