I am merely trying to follow Apples instructions as per making my iMac compatable with windows 7 here is there advice http://support.apple.com/kb/HT3967 my firmware at present is ROM Revision 3022 I will be using bootcamp but not until i can resolve this upgrade problem
The only thing I can think of is maybe Apple doesn't have a Lion compatible Firmware installer?
If nobody else hops in here with another idea then the only thing I can think of is to get an external HD and install 10.6 back on to it and boot from there and give it ago. If anything you now have a back up disk?
Maybe try the iMac forums to see how they did it. Just mention you were here already.
But you MAY have to swap the drives as the firmware installer might not work via booted from an external drive, just the nature of the beast.