Success
here are the basic steps.
1. Start Internet recovery (reboot holding down cmd-r), have at least a 16gb USB stick ready
2. Select option to instal Lion to USB drive. Where I am right now, it said it would take 5+ hours. It probably took 4+. After the download, it will immediately reboot, and start installing, so you need to catch it before the reboot. At this point, power it off, or yank out USB.
3. Reboot to normal drive. The USB now has the installesd.dmg. There are numerous example on the web of how to make this bootable. Note: you probably need to reset PRAM here. Look at general Mac help dock on how to do this.
4. Ultimately, I was able to boot from the USB, format the internal drive, and reinstall.
My only issue now is, when I reboot into recovery mode (holding cmd-r down during reboot), I get a spinning globe with a message saying "starting recovery process from network, this may take a while". It then presents a drop down box to select wifi, trouble is, the drop down list isn't populated with every hotspot it sees, just 2 or 3 that seem to be alphabetical. There is an option to enter ssid and pw, but it won't accept any combination.
Now, here is the odd part. If I reboot, and hold the alt/option key down, I can boot into the recovery partition. Weird.