Problem is actually that my compiler doesn't find the SDL library files. I rounded down possible errors by removing all SDL files, reinstalling SDL and compiling without SDL_image. No help.
Files I copied from SDL-devel-1.2.15-mingw32.tar.gz package:
sdl\include to mingw\include\sdl (I later copied files to mingw\include root as well)
sdl\lib to mingw\lib (3 files: libSDL.dll.a libSDLmain.a and libSDL.la)
sdl.dll and sdl-config to mingw\bin
I installed it via msys, and later manually just to make sure, and also copied same files to corresponding places in msys folder.
The error message:
c:/mingw/bin/../lib/gcc/mingw32/4.7.0/../../../../mingw32/bin/ld.exe: cannot find -lSDL
I have been using a simple make command in msys console, I moved the options for build into makefile to make things easier.
I'm using WinXP, MinGW/MSYS, SDL 1.2.15 and trying to compile fheroes2 source code.