You seemed to have created quite a mess. I'd recommend either waiting until Tuesday or if you have an Apple Store in your area to make an appointment and take it in today. There is a good chance they can probably help you navigate through.
As a new user there are some sites I'd recommend you bookmark and use. Also PLEASE do not treat your machine that like a MS Windows machine. What i mean is it's common to have to reinstall Windows to solve problems, with OS X that isn't necessary unless something terribly wrong has occurred. Please study the book marks while you're waiting.
Thank you for your comments which will take on board as I have only had the system 18 days I thought that to install as a new system would be the best option but sadly not, the nearest apple store is a few miles away so I will have to wait till Tuesday.
Thank you again for the info I will check out the links when I am up and running.
What a mess this is turning out to be, my system has been down now for 7 days and numerous calls,emails to apple support in Ireland and Texas, but no body can solve the issue of reinstalling OS X lion from the server or my time capsule.
After speaking to my last person 10 am gmt I am trying to get a replacement from my local apple store. At this moment in time OS X lion does not come on a disk for a re-install, that would be to simple, and why can you never talk with a tech guy but only telephone operators.
I am still disappointed to the service I am getting for my £2130 for my 27"iMac with upgraded Ram and graphics card,
Will keep the post going when completed.
I think you're speaking to the wrong people. In your owners manual is a number for Apple Care, call that number then request (always be polite!!!) to speak to Customer Care. When you are transfered speak to Customer Care and explain what has been occuring, remember you need to be polite (but firm), be organized with dates, times, places, receipts, etc.. and they should be able to help you through the maze you are going through. Your situation is very unusual but somewhere there is a communication problem.
Update, well it is all resolved now, it appeard that the hard drive had got a corrupt partition and it was from there that it was trying to read the install information.
I Initially went through all the correct channels for customer care but after 4 days i got a little annoyed with being told "we are looking into it" when actually the guy in the apple store sorted it in less than an hour.
ilife 11 will not supprt iweb & idvd on OS X Lion, when it installs it will corrupt the iphoto files, dont ask how but thats what they told me.
so thank you for your comments i am up and running