Setup of Windows 2008 R2 fails

Hi all,

I have a desktop I am setting up to be a lab machine. It has a WD3200KS SATA drive that I intend to use for the OS and another drive (WD2500JS SATA) for my VM's.
When I start the W2K8 R2 setup, I get to the point where I select the drive to install on, I format the drives, everything looks okay, and then I click Next.
At that point, I get an error message saying: "Setup was unable to create a new system partition or locate an existing system partition".
It suggests checking the setup log, but since I just formatted the drives, I don't expect there are any logs I can get to.
I have physically removed the second drive so it is out of the equation.
I thought maybe it was a driver issue, but since setup saw the drives, I'm thinking that may not be it after all.

Any ideas? I'm a little lost.

Thanks,

D