you don't need 7-way erase
you may have a faulty disk drive
if you added an ATI 5770 then you need 10.6.5+ and there is no retail 10.6.5 DVD. There is or was a Lion + 10.6.8 $69 flash memory card.
All you need do is supply t he OEM DVD and anything else you want to. And replacement OEM discs can be purchased from Apple if you call.
You don't have the Recovery Mode to do a network install.
You can't erase a disk drive if you are booted from it, such as Recovery parttition if it is on t he same disk.
Clone? familiar with it? Use Carbon Copy Cloner.http://www.macupdate.com/app/mac/7032/carbon-copy-cloner
Create an OS X Lion Install disc
How to clone your system: