How to create an OS X Lion installation disc
Apple has released OS X Lion as a download from the Mac App Store only; however, you can use the download to create a separate OS installation disc or drive partition to use for troubleshooting purposes.
OS X Lion has been released and is available in the Mac App Store to download and install. While its availability solely as a download may have its conveniences, the lack of its initial distribution on optical or other media has been met with a decent amount of criticism, especially by those looking for options to troubleshoot and customize their OS installations. Apple's approach to installing and managing your Lion installation does offer a decent amount of flexibility, but if you would like to have your Lion installation on DVD, then you absolutely can do this.
Luckily the OS X installer contains all the materials you need to burn yourself a boot image of the installer, and all you need to do is access this image and then either burn it to DVD or restore it to another bootable storage medium. To do this, you will need a storage medium (DVD, flash drive, or hard-drive partition) of at least 4GB in size, and then just follow these steps:
Purchase and download Lion from the Mac App Store. When downloaded it will be added to your Dock and Applications folder, but do not proceed with the installation and instead quit the store and close the installer if it has automatically opened.
Go to the Applications folder and locate the Install Mac OS X Lion package.
At this point you can either create the installation disc, or you can copy the installer to a backup location so you can create the installation disc at a later point.
Right-click the installer and choose Show Package Contents. (Note: You will see an option in the menu to burn the item to disc, but do not use this as it will only burn the item as-is and the resulting disc will not be bootable.)
Go to the /Contents/SharedSupport/ folder and locate the InstallESD.dmg disk image.
From here you can either burn the disk image to DVD, or restore it to a hard drive or flash drive. To do this, ensure your medium has at least 4GB of capacity and then follow these steps:
Open Disk Utility on your system.
Drag the disk image to the Disk Utility sidebar
To burn the image to DVD, select it in the sidebar and click the Burn button in the Disk Utility toolbar. Insert a blank disc when the burn dialog displays, and then click Burn (be sure to have Disk Utility verify the burn to ensure the media works as it should).
To restore to a drive, select the Disk Image and click the Restore tab. Then ensure it is in the Source field (drag it there if it is not), and then drag your drive of choice from the Disk Utility sidebar to the Destination field. Then click the Restore button and confirm you wish to delete the drive and restore the image to it. If you run into any errors, try formatting the drive first and then drag the formatted volume to the Destination field instead of the entire drive device.
With the drive restored, you can now boot to it by either holding the C key down at start-up with the DVD in the drive, or to select a non-DVD boot drive, then start up with the Option key held down, and select the installation drive when it shows up.
In tests, the use of optical media as a boot source does seem to take a decent amount of time to load, but it ultimately is successful and does load the installer properly. The installation appears to load and run much smoother if you use a USB or FireWire storage drive.
Note: According to an Apple Press release, Apple will be making Lion available on store-purchased USB drives for $69 sometime in the next couple of months, but this process is cheaper, will result in the same end product, and has more flexible options such as having the installer on DVD or an alternate drive volume.