What happens is that when you run the downloaded setup file, it unpacks the content of box1 and box2 into the setup folder that it creates. It doesn't matter if you are on a 32bit or 64bit OS during the unpacking.
Where it all goes wrong is right at the end of the unpacking where as we know it pops up that error message. The reason for this is that the last act of the installer is to auto run the Windows 7 64bit installation program. This is a 64 bit application which of course won't run in a 32bit Windows environment and promptly falls over.
There is another way to clean install Windows 7 64bit with ease, if not speed. Because the installer is a 64bit application, run it from a 64bit Windows OS.
Install Windows 7 64bit RC, run the downloaded setup file. The files unpack, the Windows 7 installer runs and Windows 7 installs without a fuss.
This install method will only work as long as W7 64bit RC, so an iso file is necessary long term. I know that not everyone has the RC but many will have tried it out and it is bound to be available somewhere.
What a mess and what a poor way to start off with MS's shiny new OS.