You skipped a portion of one our first steps. DELETE ALL partitions.
After talking with a customer over the phone and having him explain what he did and why here is my lack of clarity in our instructions.
You Just see a single drive look on the left labeled Drive 0 or Drive 1 Etc.
If you have more than one drive. Your new one should already have NO partitions on it and your old XP drive will have partitions. You should leave the old drive alone and focus on just selecting your new drive and hitting next.
If you backed up your files and are reusing your old drive. Keep hitting Delete on partitions until there is just a single un-partitioned drive. Select it and hit next.
YOU DO NOT NEED TO FORMAT nor partition the disk.
So why did you get a warning to select a version of windows.
XP left a hidden partition that wasn't labeled and so people ignored deleting it. That partition has drive boot information and the new windows 7 system created a second Hidden partition for its drive boot information and now there are 2 hidden partitions and one is NOT LABELED but the choice was there it was just blank and you couldn't see it as an option.
For a novice user its best to start over now and do it right the process is not for the feint of heart.
You can go back into customize and delete JUST the non labeled XP partition and exit This should fix the problem if not start over.