I have had a very different experience but the one difference is that am using a Snow leopard install disc rather than the disk that came with the computer. Also the only way i knew how to partition the disc on my computer was to boot off a old back up and use disk utility on it.
1. Snow leopard install disk straight in to lion = Disk comes up saying it can not be used with this version of OSX
2. Used a Snow leopard backup drive as the boot disk, inserted disk and pointed install to the Partition I made for it. = Install starts until the Reboot then Kernel errors and a DOS type screen sating it can not find a OSX version.
3. Tried to Carbon copy my Snow leopard back up drive to the partition = The same Kernel error when I try and reboot on the new snow leopard partition.
4. Went to Google, found a article saying that the OSX Lion Recovery partition can cause havoc not allowing you to install from a disk. Answer was to make your mac boot in firewire mode whilst using another mac to run the install disk and direct it to the correct partition this was tested on a mini mac server with two hard drives in it no on a single drive with a partition. I am currently trying this but when the disk restarted the machine it just sits on the Grey apple and has done for the last 30 mins yet i had this before and apparently its the computer scanning all the different disks connected I am hoping the install will finally restart :-s ???
I am out of ideas.