I had the same issue, to fix it,
Create a new virtual machine, use 'Custom' type,
Next.
'New - Workstation 5'
Next.
Linux
Next.
Next.
Next.
' Use bridged Networking '
Next.
ATAPI IDE Adapter, choose 'Buslogic'
Next.
'Create a new virtual disk'
Next.
Here is the important step, you need to choose 'IDE' hard disk type, then click Next.
Next.
Next. & Done.
Then power on the virtual machine with your SME7 disc in the cd drive, and it should install OK.
anthony