The error that you got:
mount: unknown filesystem type 'ext2'
could not mount root filesystem -- exiting to /bin/sh
Occurs when the kernel reaches the point where it mounts the root file system. However, you just successfully mounted the root partition, assuming it is sda6. (I’m guessing that sda7 is your /home directory.)
Did you try rebooting, and did you get exactly the same error?
Try this: Boot from the LiveCD, open a terminal window, switch to root, and do:
e2fsck -f /dev/sda6
That will force a check of the root file system and repair any errors in it (usually). Note any errors that it reports. Assuming it completes properly, reboot. If still no joy, then . . . .
I need to take a look at 2 files. (Sorry that this is laborious, not having the network connection from the LiveCD.) So boot into the LiveCD, open a terminal, switch to root, and do:
cat /boot/grub/menu.lst
cat /etc/fstab
Post output back here. By the way, if you are doing the copy/post via the floppy, it might be easier to have the output go to text files you can copy (i.e., save a couple of steps)? If you want to do that, just do something like:
cat /boot/grub/menu.lst > menu.txt
cat /etc/fstab > fstab.txt
Now the output is in the 2 files, menu.txt and fstab.txt.