You cannot install your copy of Lion on the machine. Do the following instead.
What to do before selling or giving away your Mac
Clean Install of Snow Leopard
Be sure to make a backup first because the following procedure will erase
the drive and everything on it.
1. Boot the computer using the Snow Leopard Installer Disc or the Disc 1 that came
with your computer. Insert the disc into the optical drive and restart the computer.
After the chime press and hold down the "C" key. Release the key when you see
a small spinning gear appear below the dark gray Apple logo.
2. 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 the hard drive entry from the left side list (mfgr.'s ID and drive
size.) Click on the Partition tab in the DU main window. Set the number of
partitions to one (1) from the Partitions drop down menu, click on Options button
and select GUID, click on OK, then set the format type to MacOS Extended
(Journaled, if supported), then click on the Apply button.
3. When the formatting has completed quit DU and return to the installer. Proceed
with the OS X installation and follow the directions included with the installer.
4. When the installation has completed your computer will Restart into the Setup
Assistant. Be sure you configure your initial admin account with the exact same
username and password that you used on your old drive. After you finish Setup
Assistant will complete the installation after which you will be running a fresh
install of OS X. You can now begin the update process by opening Software
Update and installing all recommended updates to bring your installation current.
Download and install Mac OS X 10.6.8 Update Combo v1.1.
Include the original discs that came with the computer and your Snow Leopard DVD as well when you sell or give it away.
