Hopefully four days later everyon'es figured out a fix. I must've downloaded ten separate times making no progress.
Can't remember where I read it, but this is what I did.
1) In Applications, find your InstallLion.app and right click (or control click), choose "show package contents."
2) Within package contents is Contents/ Shared Support/ InstallESD.dmg
3) Copy "InstallESD.dmg" to your desktop.
4) Open Disk Utility and drag the "InstallESD.dmg" to the sidebar of Disk Utility so its listed with your other disks.
5) Insert a recordable dvd, select the "InstallESD.dmg" you just dragged into Disk Utility and choose Burn.
You are burning the Lion install dmg to a dvd from which you can boot your mac and install Lion.
6) Once the new disk image is burned to the dvd, go to System Preferences and under Startup Disk, choose the dvd you just burned.
7) Restart your comupter and follow the instructions to install Lion.
Now this took about an hour altogether for me, and at times I wondered if it was working at all, so be patient.
In hindsight, I should've tried just installing from the dmg I'd just copied out of package contents to the desktop. Installing from an optical disc rather than an internal one is the slowest way.
So really, you might be able to do it without the dvd at all.
1) Find the InstallLion.app in your applications folder.
2) Right click InstallLion.app and choose "Show Package Contents"
3) Choose Contents/ Shared Support/ InstallESD.dmg and copy the InstallESD.dmg to your desktop.
4) Double click the "InstallESD.dmg" and follow the instructions to install Lion.
If it doesn't work this way, go the long way (which defintiely worked for me) and burn a dvd and install it from the dvd.