What you are saying is correct assuming you are using the same drive to install Win 7 on. I'm advocating the Registry hack method so you can install Win 7 on a new and different hard drive from where you have XP or Vista currently, particularly if your old OS is on a 250 or 500gb HD and you want more space going forward. I went from a 250bg HD to a 1TB drive so there was no previous OS on the new one for Win 7 to detect.
When I built my kid's machine on the other hand, I reused the HD that was there with XP on it and yes, blew away the prior contents with a Format during the install just as you describe above.
I think you might have misunderstood my post.
1) I am not saying your method is 'bad' in any way.
2) You can use Windows 7 own installation to be counted as the OS. So, you can take clean drives and do the following:
A) Install Windows 7 on your new blank drives, skip the product code activatation.
B) Reboot with the Windows 7 disc, run a new installation.
C) At the Drive Options screen in the setup, format your brand new OS install and continue with installation.
D) Your key will now work.
What I was trying to say is that you don't need the 'bloat' from the double install. You still need the double install, but you don't need the windows.old folders that come with it by not formatting it. The end result is a clean OS.