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I partition all my boxes with either a primary FAT or NTFS partition first for Windows to live on, then a primary Linux swap, and a big extended partition that holds all my Linux and BSD stuff. Windows has never complained beyond popping up a dialog to let me know that it has detected non-FAT partitions. It has never halted the install or refused to allow me to continue. The only possibility I can think of is that Linux might be on a primary partition that's marked as active and Windows can't see its own partition. Other than that, I'm at a complete loss.
Is your install program GUI or CLI because mine isn't GUI based (ie. no pop-ups) so maybe we've got a different install program? And yes I remeber that my Linux partition was marked as active so that might be causing the problem. I might try repartitioning with a few different partitions of different types to see what the results are. You really might be on to something with the active partition idea. It would be good to find out for sure.