I spent the weekend struggling with that error. It occurs on the final page of the Windows Vista install wizard; where you select the disk partition to install Windows on. If you too have struggling with this issue then you’ll probably have also come across KB927520, entitled “You cannot select or format a hard disk partition when you try to install Windows Vista”. Which may or may not have helped, and could end up with you inadvertently hosing your disk, in the end it didn’t help me at all.
Anyway to cut a long story short it was being caused by the USB hub (and therefore the embedded card reader) in my display unit being connected. Once this was removed all worked well. (Thanks to Nick Tritta and Paul Tallett for sparking the random chain of thought which led me to pull the USB cable out)