How do I completely return my mac mini to out of box condition

If you are using Lion or Mountain lion you need to boot to the recovery partition, start-up while pressing 'Cmd+R'

Then use Disk Utility to erase your HDD.

If you are running an older system (Snow Leopard, etc.) you'll need to boot from your install disk, from there you can use Disk Utility to erase the HDD.

You cannot erase the disk you are booted from, which is the problem you are experiencing.

If necessary see:

What to do before selling or giving away your Mac

To prepare a computer for sale or donation, in addition to the steps mentioned in this support article, take these steps:

• If you set a firmware password, remove it by running Firmware Password Utility in Recovery mode.
• If you activated FileVault in OS X 10.7 or later, turn it off.
• If you use Boot Camp, the partition must be deleted
• If you created any other data partitions on the internal drive, remove them in Disk Utility.
• Erase the data partition(s) with the option to zero out data. An SSD doesn't need to be zeroed.

The new owner will have to repurchase the software, if need be, under his or her Apple ID. If you ever updated the bundled iLife applications (Garage Band, iMovie, and iPhoto) through the App Store, you can't transfer them either.

Remove the machine from your list of registered products. If it's still covered by an AppleCare Protection Plan, transfer the coverage to the new owner by following the instructions in the AppleCare Terms and Conditions (under the heading "Transfer of Plan.")