I'm sorry, but I still have a lot of errors with your Makefile. I think the basic environment information is missing...
Here are the error messages : (invoked directly from NIOS II-IDE, Build project option)
<div class='quotetop'>QUOTE </div>
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make -k default
make -C /cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x O=/cygdrive/c/altera/kits/nios2/bin/eclipse/workspace/Kernel_DemoBoard_LAN/build SUBDIRS=/cygdrive/c/altera/kits/nios2/bin/eclipse/workspace/testModule modules
make[1]: Entering directory `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x'
/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x/Makefile:421: /cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x/arch/i386/Makefile: No such file or directory
gcc: not found
make[2]: *** No rule to make target `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x/arch/i386/Makefile'.
make[2]: Failed to remake makefile `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x/arch/i386/Makefile'.
gcc: not found
Using /cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x as source for kernel
gcc: not found
*** Warning: Overriding SUBDIRS on the command line can cause
*** inconsistencies
gcc: not found
HOSTCC scripts/basic/fixdep
gcc: not found
make[3]: *** [scripts/basic/fixdep] Error 127
make[3]: Target `__build' not remade because of errors.
make[2]: *** [scripts_basic] Error 2
make[2]: Target `modules' not remade because of errors.
make[1]: *** [modules] Error 2
make[1]: Leaving directory `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x'
make: *** [default] Error 2[/b]
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It appears that architecture information is missing, as Cross-compiler. So I tried to add 'ARCH=nios2nommu CROSS_COMPILE=nios2-elf-' in $(MAKE) command. Result is better, but there is still problems :
<div class='quotetop'>QUOTE </div>
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make -k default
make -C /cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x ARCH=nios2nommu CROSS_COMPILE=nios2-elf- O=/cygdrive/c/altera/kits/nios2/bin/eclipse/workspace/Kernel_DemoBoard_LAN/build SUBDIRS=/cygdrive/c/altera/kits/nios2/bin/eclipse/workspace/testModule modules
make[1]: Entering directory `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x'
Using /cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x as source for kernel
*** Warning: Overriding SUBDIRS on the command line can cause
*** inconsistencies
HOSTCC scripts/basic/fixdep
gcc: not found
make[3]: *** [scripts/basic/fixdep] Error 127
make[3]: Target `__build' not remade because of errors.
make[2]: *** [scripts_basic] Error 2
make[2]: Target `modules' not remade because of errors.
make[1]: *** [modules] Error 2
make: *** [default] Error 2
make[1]: Leaving directory `/cygdrive/c/altera/kits/nios2/bin/eclipse/plugins/com.microtronix.nios2linux.kernel_0.1.5/linux-2.6.x'[/b]
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Don't you have such errors ?