Fixed. I decrypted the external drive from the command line (since the PGP GUI no longer runs in Lion).
pgpwde --decrypt --disk 2 --passphrase XXXXX
Download their user manual here:
https://encrypted.google.com/url?sa=t&source=web&cd=1&ved=0CCAQFjAA&url=https%3A %2F%2Fsupportimg.pgp.com%2Fguides%2FPGPwdeMacCmdline_991_usersguide_en.pdf&rct=j &q=PGP%20command%20line%20mac&ei=JRs3TtvdAsTX0QGZrezcCw&usg=AFQjCNFIGk95rzWj8kgh itrJB4Fu7uNoEQ&sig2=f-wRntVYrNTYvfo6bYeNDA&cad=rja
It says it's for verion 9, but it still works.
Then you can reformat the drive. No errors.
actually it's not that easy.. first had to zero out a couple of sectors, either manually or using windows 7's diskpart command line:
select disk X
let it run for half an hour
then partition and format with windows 7 (or maybe MacOSX then too..)
and finally initiallize with MacOSX.
and that finally ends my disk formatting nightmare