9to5Mac yesterday briefly touched on the subject of installing Lion by noting that you’ll need at least 17 gigabytes of free space: Four gigabyte for the Lion installer itself and at least 13GB available on your hard drive after formatting for the Lion operating system. This is the minimum, per Apple’s knowledge base article, for Lion and an Internet Restore partition. But some users are reporting being unable to install the operating disk even though their hard drive has plenty of free space available. For them, the Lion installer grays out the disk and labels it with the “This disk cannot be used to start up your computer” message.
The extreme solution entails backing up and reformatting the target disk before installing Lion. Luckily, Apple explains in a support document, you can try resizing the partition which you wish to install OS X Lion on. This is done by selecting a desired disk partition in Disk Utility and dragging the resize corner to make the partition slightly smaller, Apple explains:
The partition only needs to be approximately 128MB smaller than it was before resizing.
When the partition resizing is complete, simply proceed with Lion installation. You can resize the partition back to its original size when you install Lion, Apple explains. The company does not provide an explanation for the issue…
It is also possible to install Lion on an external storage device, including USB thumb drives, FireWire, USB or Thunderbolt hard drives and even SDHC or SDXC memory cards. This is useful if you want to keep your copy of Snow Leopard intact and instead try out Lion by booting into it from an external drive by holding down the Option key at startup. One caveat: Your external drive should have a single partition formatted using the GUID Partition table (see the screenshot below). This unfortunately means you’ll have to re-format external drives that have been prepared for Windows FAT or NTFS file systems, as well as drives with multiple partitions on them, losing all data in the process. You may also find this article helpful explaining how to create a bootable Lion USB drive or DVD which you can plug in to any supported Mac and boot from without performing the upgrade procedure.