You can install a Windows 7 upgrade on Boot Camp
I was also unable to install from a Windows 7 upgrade CD (sorry if it's actually a DVD). A full version would have installed without incident on an empty Boot Camp partition.
When I tried to install the upgrade, it asked for the earlier Windows CD that I was upgrading from. It rejected my academic retail full version of XP, probably because it was not even SP1. Boot Camp says you need at least SP2.
That's when I learned how to "slipstream" to make a single-disc XP SP3 from my 2 discs. But I could not use that disc to either get the Windows 7 upgrade installed or even to install XP SP3. So I either had to buy Windows 7 again, this time the full version (ouch), or figure out another plan.
My only choice at this point was to trick Boot Camp and the Windows 7 upgrade into thinking I had a prior Windows OS already on the Boot Camp partition. I planned on installing XP SP3 OS on an external drive, and restoring that to Boot Camp.
I plugged a USB HDD into my Windows PC and started installing my slipstreamed Windows XP SP3 onto the external drive. The install crashed after the first reboot, but there was enough in the \WINDOWS directory on the external drive that it eventually got me to where I needed to go -- I think it just failed to install drivers for the attached hardware, which did not matter since it got blown away during a reformat (details to follow).
I copied the \WINDOWS directory from the USB drive to the Boot Camp partition and put my Windows 7 upgrade CD back in. It worked! The Windows 7 upgrade started installing. The install needed to re-format the Boot Camp partition, since it said it could not read the NTFS-partition that the Mac had formatted. Even though the re-format wiped out the couple of files and a directory that OS X had initially installed on the Boot Camp partition, it has not made any difference.
Looking back on it, perhaps I could have simply copied my existing \WINDOWS directory from my other PC to the Boot Camp partition, and the install would have worked (since I was not trying to start Windows with it -- I just needed it to get the Windows 7 upgrade going).
Unfortunately, my other PC stopped booting correctly after installing XP to the external drive, thinking I had a dual boot going on, which I eventually fixed.
I did not even go into the trouble of trying to be an OS X user, not liking the OS X interface (being an abused Windows user since 3.1 who has well-developed coping mechanisms), issues with Crossover for Office 2003 for Windows, and then problems with initially getting Boot Camp set up. I have been at this for days!