i can't install Lion
iMac, Mac OS X (10.6.8)
I had similar issues.
The following article pointed me in a better direction:
http://reviews.cnet.com/8301-13727_7-20081398-263/os-x-10.7-cannot-be-installed-on-certain-drives/
I tried to go the partition route, but for some reason the operation failed.
I decided to attempt a Lion install again afterwards anyway, but once again it failed, but now my whole system was hosed and could not revert back to Snow Leopard.
I did a restore from time machine. Once that completed, I attempted to install Lion again, and ta da! it works now.
What a pain.
A better solution could be this
i can't install Lion