Thanks for all the help, you guys. I really appreciate it. It HAS been informative.
Here's an update from last night:
I gave the 2nd partition a little breathing room, taking 22G from the 1st partition. Made 1st partition active, applied change and exited. I then had boot (or restart) options and chose "from local disk". This restarted Windows, so I guess the fact that the 1st partition was inactive had been one of the problems. I inserted 1st W7 recovery disk, restarted again, pressed ESC for startup menu and chose RECOVERY, bringing me back to the repair options screen. Did another recovery and it failed again at 85%, inserted PartWiz bootable, changed 1st partition back to ACTIVE again and restarted Windows Vista.
What would be the worst case scenario if I format my entire HD and the recovery (or re-install) doesn't take? Do I then just use my Vista recovery disks so I can at least have an OS? I read somewhere that a recovery doesn't actually install the OS, it just does a deep polish job on the one that's already there to bring it back to factory finish. But then, that wouldn't explain how I installed Vista on this HD that came with W7, would it.
The guy at MS was implying that the product key is actually hardwired into the hardware by the manufacturer, so it's not a matter of someone at MS having the authority to give permission, it just simply wouldn't work. However, he was saying a lot of things won't work, and then would change his story when I told him it's been working for the last year (he said swapping out the HDD won't work...well, yeah, it does).
Thank you for the link, Lighthouse, I'll check that out now.