JFTR:
kvm -kernel /tmp/vmlinuz -initrd /tmp/initrd.img -append "apm=power-off boot=live live-media-path=/live/autobuild/ 
bootid=autobuild20120108_121023 findiso=/grml.iso" -hda /tmp/grml-hd.img

vmlinuz and initrd are files from the grml iso.

I am pretty sure your specified parameter in findiso is wrong as i can reproduce your error if i specify a parameter to a 
non existant file in findiso.

To debug the issue please start with break=top which will give you a shell in the initramfs. You can afterwards start 
udev via
/scripts/init-top/udev

and mount your partition with:

mount -t vfat $partition /root 

and check if the file exists.