Are you sure? AFAIK:
1. You need to first install an older version, not same version.
2. An upgrade version means he can't install it (not that he can't activate it) without first having an older version...
So how could he install it the first time? if he manages to get it to install the first time, why reinstall? just activate... if he installed and it activated there is no reason to reinstall.
You obviously haven't done it. Win7 (upgrade retail, probably full retail is the same), will let you install, regardless of whether or not you had a prior OS installed. You just choose not to install a product key during installation, and then it installs in a 30-day trial mode. (have 30 days to install product key and activate).
If you have an "upgrade" product key, then it will not activate when you install onto a clean HD. It gives you some obscure error, which, if you look it up, says that you can only use an upgrade key with an upgrade install. You need to have an OS on the HD before you install, if you want to use an upgrade key. However, it doesn't have to be a prior OS, it can be Win7 (since upgrading from Win7 to Win7 is supported).
So just install the OS on a clean HD, without entering the upgrade product key, then when Win7 is installed, do the install again, this time it will let you enter and activate the upgrade key.
Edit: Whether this is all within the terms of the EULA depends on whether or not you owned a legal license to a previous OS. Not whether or not it was actually installed previously.
Regardless, if you buy a legally-produced retail copy, it's not copyright infringement, even if you didn't own a prior license. Microsoft could technically invalidate your license for violating the EULA, but that's unlikely. I'm sure that they're just happy your paying for a copy, rather than using a totally bootleg copy.