Microsoft notify that “Windows 7 and Windows Server 2008 R2 installation will fail to install to a NTFS formated partition with following error message: “Setup was unable to create a new system partition or locate an existing system partition.” It’s caused, because “BOOTMGR, which resides on system volume, cann’t be placed on a volume that has been formatted with NTFS cluster size greater than 4096 bytes (4K),” explains Microsoft in KB2272294.
“Option 1: Create separate system and boot volumes. This should be used in scenarios where NTFS cluster sizes > than 4 needed. System volume: Create small volume to hold BOOTMGR files (100MB). Format the volume with cluster size <= to 4K. Boot volume: Create second volume to hold Windows operating system files. The cluster size can be > than 4K (NOTE: File compression isn’t supported on volumes with NTFS cluster sizes > than 4K).
Option 2: Choose cluster size <= to 4K if you want to have system/boot volumes on the same physical volume.”