Hi
Formatting it should format it whether it has anything on it or not.
Look at this tutorial on how to Clean Install Windows 7....
Clean Install Windows 7 - Windows 7 Forums
This should format the disk and get it ready for the install as part of the process.
Make sure you pick NTFS format.
An MBR is what you should see to install Windows 7.
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If I remember correctly GPT disks only support Windows Server.
It sounds like it thinks you are trying to install Windows Server, check you disk package.
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I found this explanation...
Differences Between MBR and GPT Disks:
MBR disks are supported (readable) by
all Windows operating systems.
GPT disks are only supported (readable) by Windows server 2003 SP1 +, XP 64-bit, Vista, Windows 7, Windows Server 2008.
Anyway try and install using the process in link at the top and if the same thing happens check the disk and make sure it's really a Windows 7 Ultimate disk.
Mike