Is disk0s1 a partition you created or is it an artifact of what's been going on? If you created it intentionally then ignore the rest of this post.
Do you have backups for the whole disk? I'm not sure you can correct this without wiping and starting again.
However I have some ideas that you could try that may keep you from having to restore everything but they're just as likely to mess up the drive. I have no way of trying out my ideas here so…
Basically what I believe you need to do is get rid of the disk0s1 partition and add it into 10.8 downgrade to 10.7 so that those top two partitions become one and you have 3 partitions on the drive. Then you would try the Lion install again onto that one partition.
If you select the disk0s1 partition in the diagram and select minus I believe the space from that partition should be added to 10.8 downgrade partition.
NOTE: You can mess all you want with the graphical partition table layout nothing is done to the drive until you press Apply. If you press Revert it all goes back.
As I wrote this might allow you to install Lion on the 10.8 downgrade partition but its only an educated guess.
a brody wrote:
That's an artifact of what's going on.
Then as I wrote I would try to remove the disk0s1 partition and add it into thre 10.8 downgrade partiton, you want to get the disk down to three partitions in the graphicall view.
While a Lion or Mountain Lion root partition is really 3 partitons, the root, the EFI and the Recovery partitons, in the graphical display it shows as one.
Doing that may allow the install to proceed.