This is insane. I bought a Mac so I wouldn't have to do crap like create partitions, so it would just work.
I've run LInux boxes and laptops, so it's not like I can't do it, but it's very odd and strange to find that just to install the next update from Apple you have to jump through stupid hoops like this.
Problem occurred for me on a machine with Macintosh HD partitioned in two - system area & user area.
An fsck initially indicated minor volume header information needed repair. I thought that might be the fix but no.....
I went through the list of fix possibilities from least to most complex and it wasn't until I followed souloxide's suggestion of creating an extra partition that I was able to get 10.7/10.8 installer to recognize the Macintosh HD partition as an install destination.
There's obviously a flag or two buried in the file system that are difficult to reset!