Of course u r most welcome in this community and hope help with ur best knowledge. Thanks once again !

There r so many distro that can provide u what u want, just look for the right distro that suits ur requirements. U may try Linux Mint / Suse Linux / Ubuntu / Fedora.

Try to reinstall the same as u did earlier, just reinstall, not going to format..... and again if it asks for the same words, don't detach the usb and hope after completion u will get a menu to boot from hard disk also in spite of attaching USB. or u can make 1st boot device of ur hard disk going to BIOS setup after finishing the installation and reboot immediately.

Windows, Macintosh, and Linux r the 3 most popular OS. All they provide a way for computers to store, launch, and organize programs and files and web related tasks. Mac regulates the design of SW/HW add-ons more rigidly than MS, so SW/HW added to a Mac is less likely to fail. While Linux is also popular OS in the market. It is based on Unix, an OS used for more than 3 decades that now powers about 90% of Web sites. In sharp contrast to both Wind and Mac, Linux is an open source project. As such, anyone can modify Linux code, and though it is free to use and distribute. Although Linux offers greater security and flexibility than other OS and requires some technical knowledge to install and use. For desktop/home purpose, Linux is very cheap or almost free, while Wind is expensive. For server use, Linux is very cheap compared to Windows..... Windows allows programs to store user information (files and settings) anywhere. This makes sometimes impossibly hard for the users to backup user data files and settings and to switch to a new computer. where Linux stores all user data in the home directory making it much easier to migrate from an old computer to a new one. If home directories are segregated in their own partition, it is possible to upgrade from one version of Linux to another without having to migrate user data and setting. Linux has a reputation for fewer bugs than Windows. Linux is very secure, efficient & flexible than Windows and Macintosh.

According to Plan A- There is no probs to install Linux on another partition (extended) but be careful during partition, don't accept system proposal, best to select custom partition and declare partition as u need.

Plan B - U may take a look at:www.pendrivelinux.com/ where u can find all of ur answers. and also see here: http://askubuntu.com/questions/129901/how-to-install-ubuntu-12-04-with-pendrive-linux
as u work from flash drive, it is necessary to make boot sequence to boot from flash drive first !! No, it doesn't make any harm of ur Wind 7 OS. Yes, u may install other necessary SWs on the same drive.

Plan C - If u r a new babie in Linux OS, then No, not necessary to format HDD and install Linux as standalone OS (See Plan -A). If u r expert then u may go for format and install Linux as single OS.

Plan D - Using 7 u can not get understand of Linux though Windows 7 has some features that likely to Unix/Linux OS (referring to inner mechanism). 7 can't help u at all in this scenario. Best to install all necessary SWs on Linux OS and start to gather knowledge of OSS.

One Last Item - Open terminal and type as: uname -mrs (for kernel version/PC architecture)
cat /etc/*-release (for full history about OS)
or lsb_release -a
or more /proc/version

Linux is the best choice to support any amount of RAM, CPU etc, but distro may vary one to one.
Technically can install just a bootloader and the kernel alone, but as soon as the kernel boots, it complains about not being able to start "init", then it just sits there and u can't do anything with it. It is part of bootloader that is in the MBR. The kernel sits somewhere on the regular area of a disk. The bootloader is configured to know where that is, so it can load the kernel and execute it. LFS / Minix have a good idea to figure out how to build a minimum system. U can also navigate Linux From Scratch: www.linuxfromscratch.org/