I see you are using a restore disk for install. Have you used this before to install to a selected partition? Does it give special options during install or is it a regular Vista installer for your licensed version?
The SysReserved is indeed System Active controlling the dual boot for XP/Win7, so now Vista needs to update that to add itself to the MBR. You say is balking at installing on a logical partition. You only have 3 primary partitions so what I would do is boot free Partiton Wizard bootable CD
, wipe the Vista partition, Create a new one, label it Vista and make it Primary. Then try installing Vista to it.
Here are the DISKPART Commands to do the same thing from the booted Win7/Vista DVD repair console or Repair CD Command Line. Press SHift F10 at first screen, in Command box type:
SELECT DISK # (replace # with Vista Disk #)
SELECT PARTITION # (replace # with Vista partition #, be certain
CREATE PARTITION PRIMARY
If the Vista restore disk balks at installing to Primary, then make note of exactly what happens during the boot and install sequence up to the error and copy the exact wording and numbers of the error to post back. A camera snap would be perfect.