Step 1: Boot from CD
Step 2: When setup says: Welcome to Setup press Shift+F10, this will bring up the command prompt.
Step 3: Type: Diskpart
Step 4: Type: Select Disk 0
Step 5: Type: Clean
Step 6: Type: Create Partition Primary
Step 7: Type: Select partition 1
Step 8: Type: Active
Step 9: Type: Exit (2 times)
Step 10: Reboot the Virtual Machine (or real)
Step 11: Now run setup as normal.
Optional Step 12: Press F10 and then type at X:\ : format C: /fs:NTFS /q (example)
Switches:
Format C: = Formatting Drive C (First Hard Drive)
/fs:NTFS = Use File System, New Technology File System (NTFS)
/q = Quick format
And Then type exit and proceed setup as normal.