I wrote a longer story to the Openwrt-devel mailing list, but based on my debug work so far, it looks like the kernel version of the underlying buildsystem for some reason has impact on the kernel configuration (?) of the firmware to be compiled. And as Ubuntu 11.10 has kernel 3.0, that breaks things compared to the 2.6 kernel in Ubuntu 11.04 (and in Backfire).
There might be an actual problem with kernel config with the 11.10 compiled version. Around line 29300-30000 of the log there is the part with scripts/kconfig. And there the 11.04 version log talks about /boot/config-2.6.38-12-generic, while the 11.10 log contains /boot/config-3.0.0-13-generic. That difference then causes several differences for the various kernel build option selections made by the build process.
Neither of those versions mentioned in the build log is actually the 220.127.116.11, which the Backfire kernel actually is.
Apparently the /boot/config... file mentioned in the build log below is from the buildhost system, not from the Openwrt source. Strange.
@@ -29338,9 +30082,10 @@
scripts/kconfig/conf -o arch/mips/Kconfig
-/boot/config-2.6.38-12-generic:3812:warning: symbol value 'm' invalid for
+/boot/config-3.0.0-13-generic:2182:warning: symbol value 'm' invalid for IWL4965
+/boot/config-3.0.0-13-generic:3956:warning: symbol value 'm' invalid for FB_VESA
-# using defaults found in /boot/config-2.6.38-12-generic
+# using defaults found in /boot/config-3.0.0-13-generic