Windows 7 re-install hangs on "setup is starting"

I am working on an e-machines laptop running Windows 7 Premium which stopped responding for my cousin. I ran diagnostics on the system (mem test 86, HD sector tests) all showed good. When I boot the Win 7 cd it copies the win files and then hangs on "setup is starting" the blue circle is turning and the cursor is moveable but no progress.
Any help would be appreciated on troubleshooting.