As most of us know, when Windows 7 came out, there were all kinds of discussions about how activation works and what was and was not legal. It seems Windows 8 will be involved in the same situation.
But for me, on a normal install, I needed a prior OS drive available for the install to see. I installed to to a new drive, but it would not activate until the other OS was present during the install. It is an upgrade, and your Windows 7 license will be sacrificed, legally at least.
I don't run VMs, but Microsoft considers that a separate computer for installation. I would have to guess you would need another OS present to activate, and the legal requirements of a prior OS, I assume, still hold.
What type of message are you getting when you try to activate?