Hi, there is a bug that leaves out an attribute in one of the tags in the <project>.stf file when you apply changes in the project property page.
To remedy this, you can open up the <project>.stf file in an editor and add
offset='0x0'
to the location_on_target tag.
So your tag should look like this:
<location_on_target offset='0x0'>
Save these changes and you should be able to upload the kernel image without a problem.
(note: the same problem will occur when applying changes in a filesystem project's property page; for a filesystem project, the offset should be 0x200000)
This bug will be corrected in the next release of the Nios II Linux Distribution.