Drew,
Your friend is saying "generally" and what you do with XP and Vista installs.
He does not specifically say what you do to install 7 to a blank HD.
It might be that you just need to show it a qualifying version on cd/dvd - but no one has categorically said so.
MS employee Harold Wong stated on his blog some months ago that a qualifying version on cd/dvd would do - then he withdrew the statement.
It is sensible for MS not to broadcast how to do it - they want people to buy the Full version.
I think you are right about Microsoft wanting chumpts to purchase the full version. Here's a reply I received from someone at Microsoft who got the "straight scoop" from Presales and tech support:
Thank you for your e-mail regarding your Windows 7 Upgrade.
I contacted the presales and licensing department to get the most accurate answer for your regarding the OS instalation. According to them, the information you recieved in the previous e-mail is correct. If you are installing a Windows & Upgrade the machine will need to have a pre-existing OS on it in order for the upgrade to install. The software does not ask for proof of an OS, but instead will not install if one is not found. If you have a full version disk of Windows 7 you will be able to download this to a formated hard drive.
I guess we'll see who is lying on the 23rd!
Emil