This is a server side problem not one at your end. Something is amiss with Apple's servers. Wait a few hours and try again.
Your situation validates the need for a Lion/Mt Lion OS USB thumb drive. When you get yourself straightened out you might consider making one.
Well it is either an Apple server side error or the drive in your system has failed to the point that the downloaded files can not be written to it or are being corrupted when trying to write to the drive.
To test connec an external drive and when asked which drive to install to point it to the external drive. If the download goes through and the installer want to restart your system then it is your internal drive that is bad.
No you can make the thumb drive at any time once you have the OS download saved onto a drive and you have a working system.
With Lion Apple chose to DELETE the download once the install was finished. This is Hard written in the installer routine. So what you have to do is STOP the system from Rebooting once the download is completed and SAVE a copy of it to some other drive, like an external.
When making the thumb drive use a small program called Lion Disk Maker. It also works for Mt Lion.
Yes connect the external and Restart your system. Not sure if you are using the built in Recovery HD but I would suggest you try the Online Internet Recovery system. At startup hold down the Command+Option/Alt+r keys until you see a spinning globe in the center of the screen. That will be the online version of the Recovery HD. You can then start the install and point it to the external.
If that works you need to take your system to Apple as the internal drive is failing, failed, bad and needs to be replaced.
Thanks for the suggestion, I have an external hard disk (formatted to MAC OS Extended), do I need to mount this hard disk before running the 'Reinstall Mac OSX' task?
No, Apple will usually never make any comment.
Given the suggestion you make a bootable thumb drive once you get your download here's how:
Make Your Own Mountain/Lion Installer
1. After downloading Mountain/Lion you must first save the Install Mac OS X Mountain/
Lion application. After Mountain/Lion downloads DO NOT click on the Install button.
Go to your Applications folder and make a copy of the Mountain/Lion installer. Move
the copy into your Downloads folder. Now you can click on the Install button. You
must do this because the installer deletes itself automatically when it finishes
2. Get a USB flash drive that is at least 8 GBs. Prep this flash drive as follows:
a. Open Disk Utility in your Utilities folder.
b. After DU loads select your flash drive (this is the entry with the mfgr.'s ID and size) from the left
side list. Click on the Partition tab in the DU main window.
c. Under the Volume Scheme heading set the number of partitions from the drop down menu to one.
Set the format type to Mac OS Extended (Journaled.) Click on the Options button, set the
partition scheme to GUID then click on the OK button. Click on the Partition button and wait until
the process has completed.
d. Select the volume you just created (this is the sub-entry under the drive entry) from the left side
list. Click on the Erase tab in the DU main window.
e. Set the format type to Mac OS Extended (Journaled.) Click on the Options button, check the
button for Zero Data and click on OK to return to the Erase window.
f. Click on the Erase button. The format process can take up to an hour depending upon the flash
3. Locate the saved Mountain/Lion installer in your Downloads folder. CTRL- or RIGHT-click on the installer and select Show Package Contents from the contextual menu. Double-click on the Contents folder to open it. Double-click on the SharedSupport folder. In this folder you will see a disc image named InstallESD.dmg.
4. Plug in your freshly prepared USB flash drive. You are going to clone the content of the InstallESD.dmg disc image to the flash drive as follows:
a. Double-click on the InstallESD.dmg file to mount it on your Desktop.
b. Open Disk Utility.
c. Select the USB flash drive from the left side list.
d. Click on the Restore tab in the DU main window.
e. Select the USB flash drive volume from the left side list and drag it to the Destination entry field.
f. Drag the mounted disc icon from the Desktop into the Source entry field.
g. Double-check you got it right, then click on the Restore button.
When the clone is completed you have a fully bootable installer that you can use without having to re-download Mountain/Lion.
Note: The term Mountain/Lion used above means Lion or Mountain Lion.
As an alternative to the above (you still have to do your own download of Lion/Mountain Lion) you can try using Lion DiskMaker 2.0 that automates the process of Steps 2 through 4.
You are correct, you will have to wait for the system to become available. Here are the instructions that you can use:
Should you choose to install Mt Lion, the same procedure will work. I have USB drives for both OS's.
Thanks for the help so far everyone. I've been using the built in Recovery HD. As we speak I am trying the Reinstall OSX using the Internet Version of Recovery HD. If no luck I will move onto the external hard disk option next.
However if Shootist007 confirms its a server side issue then I will give up today and try again tomorrow. :)
Once I get the download successful, I will definitely follow those steps to create a bootable disk, as all these failures is such a waste of bandwidth!
Even though you have done this recently I suggest you do it again just to be sure:
Repair the Hard Drive and Permissions
Boot from your Snow Leopard Installer disc. After the installer loads select your language and click on the Continue button. When the menu bar appears select Disk Utility from the Utilities menu. After DU loads select your hard drive entry (mfgr.'s ID and drive size) from the the left side list. In the DU status area you will see an entry for the S.M.A.R.T. status of the hard drive. If it does not say "Verified" then the hard drive is failing or failed. (SMART status is not reported on external Firewire or USB drives.) If the drive is "Verified" then select your OS X volume from the list on the left (sub-entry below the drive entry,) click on the First Aid tab, then click on the Repair Disk button. If DU reports any errors that have been fixed, then re-run Repair Disk until no errors are reported. If no errors are reported click on the Repair Permissions button. Wait until the operation completes, then quit DU and return to the installer.
If DU reports errors it cannot fix, then you will need Disk Warrior and/or Tech Tool Pro to repair the drive. If you don't have either of them or if neither of them can fix the drive, then you will need to reformat the drive and reinstall OS X.