Q: Lion wont install because of recovery system failure

Then I'm out of ideas. 

There are a number of folks having the same or similar problems, and several other threads, such as: https://discussions.apple.com/thread/3189387?tstart=60

Monitor them; perhaps something there will help.

Ei Virtual cheese, did you fix the problem? How did you do? I have the same problem until now!!! help me!!!

Check your ram if you've added third party rams

Sorry that did not work.

Try reviewing this solution: https://discussions.apple.com/message/15663886#15663886

I think also in that thread, there were instructions on how to resize the main OS X partition without using the Terminal program by just using Disk Utility to make the partition a little smaller and then rerunning the installer.

You might use Terminal and the gdisk command to verify that you are working with only 2 (EFI and main OS) partitions.

I managed to solve it but had to copy everything onto an external drive then erase and re-format my MacBook hard drive. I think the reason it didnt work although I only had one partition was due to attempting to create a Boot Camp partition previously and it not being successfull.

Years go by but problems remain.  Trying to upgrade from 10.6 to 10.7 (Lion) I get the error in this thread

    "OS X can't be installed on the disk because a recovery system can't be created

Which vectors to

    http://apple.com/support/norecovery

which resolves to

    http://support.apple.com/kb/HT4649

which appears to have nothing to do with the topic unless you scroll all the way to the bottom and there a link

    support.apple.com/kb/TS3926

takes one to another page that appears have nothing to do with the error but what the heck, I try that (as others above have observed) and that involves slightly shrinking the main partition (only shrinking by 128MB) through Disk Utility.  Disk was about 75% full.  I tried shrinking 200MB and it would crunch and consider and then tell me it could not resize.

So remembering that I had seen some Software updates were suggested I went back and installed those dealing with Migration Assistantand  Apple install.

I then was able to resize it down about about 300MB via Disk Utility suggestion in the tech note.

I return to Applications and click on the Upgrade-to-Lion icon and ... failed again with same error!

OK so I tried to resize things downward further.  Over and over.  Always failed with error that I couldn't resize the partition.  So I started deleting things.  Got down to about 60% free space.  Still couldn't resize.  Called local Mac repair store who quoted me $200 to archive, provision with Lion, and restore.  No to that.

After lunch I decided to try the install one more time.  And this time for unknown reasons it worked.  It must have had something to do with having a lot more free space available that I thought it needed (based on the technical note).  One thing the guy at the store told me (that got me to thinking about it one last time) was that you needed about 25% of the space available for the upgrade to work.