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Few suggestions:
The Handbook has a full chapter about custom kernels, the link you posted above refers to the old 3.4 version. Also, to stay on the safe side and not nuke your droplet, the KODIR make variable is useful as per this forum discussion. It basically allows you to boot back into the latest known-to-work kernel in case something goes wrong.
I’m also thinking in the EXAMPLE kernel config, there seems to be a few things that I find unusual in the context of a VPS, such as the splash device which provides splash screen and screen saver support. Is this some sort of weird dependency issue that requires this module to be compiled in?