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#11
Boot the Win7 DVD, press Shift F10 at first screen to open a Command Line, then use the steps given here to wipe the HD: SSD / HDD : Optimize for Windows Reinstallation
The HD must always be wiped with at least one set of zeroes if there is a virus to overwrite infected code.
The reason your key was not accepted is because you didn't compete either of the workarounds given. I dont' know why you think that MS is somehow punishing you since it was explained to you that this is a perfectly legal workaround used by millions to avoid having to install the qualifying OS first. As long as you have the qualifying OS on hand then you meet the EULA license agreement.
Once you wipe the HD, the DVD will autostart to Custom Install. Do one of the workarounds given in the tutorial to get it activated.