After further kernel compilation and testing I have managed to compile
the latest ubuntu kernel and got it to work.

It turns out the config option CPU_IDLE (CPU idle PM Support) was causing my 
issues.
Enabling this in any version kernel later than 2.6.24 causes the kernel oops 
and system instability in my laptop.

System SPecs:

CPU: Intel Pentium Dual Core T2080 @ 1.73 GHz
Chipset: ATI SB400
RAM: 1GB
GPU: ATI Xpress 200

-- 
ACPI Power Switching Fails Toshiba L30
https://bugs.launchpad.net/bugs/228375
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