Ok, so you get to the screen to install to a disk and it says "There is not enough free space on OS X Base System to install" but there is an attached blank virtual disk. You need to open up disk utility, format the disk and then install.
NOTE: The mouse does not line up correctly as with most OS's pre-VM-Tools. Unfortunatly, unlike most OS's Mac OS X can not be installed via tab, enter, arrows, y/n etc etc. You need to just fiddle with the mouse. I got it tho, wasn't too hard, but it might depend on your resolutions etc. Anyway fire up Disk utility.
Notice the second HDD thats not mounted, select it and hit erase.
It should now appear as a disk to install OS X to.
Mine took about 15 Minutes.
As usual install VM-Tools ASAP.