The issue is that Lion wants to install the Lion-supplied (by default) restore partition.
And because you have a mirror-RAID, it can't repartition your system drive in order to create said partition.
If you want to keep the RAID-1, you'll probably have to install to a single (eg: Firewire-based) external drive ("A"),
install Lion again to yet another drive ("B"), and then boot from B and use Disk Utility to clone A to your internal RAID. You will lose the restore partition, and any Software Updates pertaining to that (there's been one so far) will fail.
I also bought the Lion OS X server for my Snow leopard mac mini server. it is now in 10.6.8 build 10K549
I went to the APP application and bought the lion server 10.7.3.
When I try to install it it says it needs the 10.7.x to be in place.
so how do I upgrade the server software I have on this mac mini server ?
I had the same issue and I solved it with the following steps. Before you proceed connect an External SuperDrive to your Mac Mini, create a full backup of your system and read carefully the following manual
1) In your OSX Snow Leopard installation, go to System Preferences to perform a software update check.
2) Buy and download OSX Lion (and OSX Lion Server if you have OSX Snow Leopard Server) from App Store, after download do not proceed with installation.
3) Make a bootable OSX Lion Installation DVD performing these steps:
3.1) Go to the Applications folder and locate the Install Mac OS X Lion package, right-click the package and choose "Show Package Contents".
3.2) Go to the /Contents/SharedSupport/ folder and locate the InstallESD.dmg. Use Disk Utility to burn this image to DVD.
4) Reboot the Mac Mini holding the "C" key at startup and proceed through the installation process steps, when you are prompted to choose where to install OSX Lion, select the RAID volume. An alert will appear to remind that some features will not be available if you install OSX Lion on a RAID Volume, choose "Continue" to proceed.
5) After the installation process, during which the Mac Mini reboots at least twice, log in with your credentials and go to System Preferences to perform a software update check.
I've tested it with Mac Mini Server and OSX Lion 10.7.3 Installation Package and it worked.