I was trying install Windows 7 SP1 from USB. After booting from the USB Drive, I able to see the HDD from the installation screen. (As Below)
Setup was unable to create a new system partition or locate an existing system partition. See the Setup log files for more information.
I was trying go into BIOS Change the HDD Type from IDE to ACHI, but still having the same problem. I even try put in another HDD for the installation the problem still exist…
Once I was suspect it might be the installation in USB has corrupted. I tried to redo again, but still fail.
Now I slowly research on this matter. I found that a lot of people also having this issue.
1. Rebuild the USB – Windows Installer – FAILED
1. Change another HDD – FAILED
2. SWITCH from IDE to ACHI – FAILED
3. Change the BOOT Priority – FAILED
1. Use command prompt make the Drive and Partition ACTIVE – FAILED
At the installation Main Screen, press Shift + F10. You will prompted a command prompt.
>select disk 0
>select partition 0
1. UPDATE BIOS – FAILED
ATTEMP 5 (FINALLY)
1. REMOVE ALL THE USB DEVICE, I got one Multi-Reader (For MicroSD), I even remove USB Mouse, only leave keyboard for solo for doing the installation. TATA! Finally it able to proceed the installation! Thank God! – PASSED!
I found the solution in this page. http://answers.microsoft.com/en-us/windows/forum/windows_7-windows_install/cannot-install-windows-7-from-usb-error-setup-was/4b3c0430-9e41-47f6-b1cd-aed55fea7dad
The idea for removing all the USB Device is from this answer:
It appears that the root cause of this issue is that the Windows setup is identifying a primary drive as being the target (ideal) location to install windows. I had this same issue under different circumstances. I was trying to install Windows 7 Ultimate on a standalone SATA drive connected to a ASUS P8Z77-V motherboard. The SATA Hard Drive was the only HHD plugged into a SATA port, however I had a RevoDrive 3 x 2 installed in a PCIe slot. I continued to receive the same error message and kept changing ATA configurations, ect. After reading this article I tweaked the boot priority in my BIOS to utilize the SATA drive as the first drive in the boot priority (right after my optical drives). The result of the changed allowed the windows to install to complete on my SATA HHD. I hope this helps.
Hence, the conclusion is remove all those unnecessary drive, just leave your PC with one HDD and one USB (Installation ONLY). KEEP IT SIMPLE AND STUPID (KISS)!