Stuck on Mac OS X Utilities, cannot reinstall Mac OS X Lion 10.7

Hello Everyone,

I am new to the Apple world, saw an imac (late 2008) at the thrift store (final sale) and brought it home. When I turn it on, it takes me right to the "Mac OS X Utilities" with the four options of restore, reinstall, get help online, and disk utility. When I click on Reinstall, it drops down "An error occurred while preparing the installation. Try running this application again." I am connected to the internet, have tried other forum help ideas like changing the date or repairing and fixing the disk but nothing helps. I also tried to erase the disk but it "couldn't unmount disk." I do not have another similar mac to do the app download things.

My question is, is there any other steps I can take? I saw on Ebay, an OS X 10.7 Bootable 16gb USB 3.0., could I use this to install and by pass the Mac OS X utilities? If I want to use this imac as an everyday computer can I buy other USB and download something newer to use?

Thank you so much, any help is appreciated!