OP:
I'm referring to the image you posted in post #3 above.
Looks to me like there's a partition withOUT an OS on it "above" the "OS X Lion" partition, is this correct?
Can you disconnect the USB drive, and then BOOT FROM the OS X Lion partition as described above?
If so, here's what I would try.
First, if you don't already have it, download CarbonCopyCloner. It's FREE to download, and FREE to use for 30 days. Make sure you put it on the "OS X Lion" partition.
Next, boot from the OS X Lion partition as shown above.
Next, copy anything you wish to save from the "upper partition" to another drive.
Next, re-initialize the "upper" partition.
Next, use CCC to clone the contents of "OS X Lion" to the upper partition. When the clone is complete, rename the upper partition in the finder to something you will recognize at bootup.
Now, reboot with the option key held down to bring up the startup manager. Pick the newly-renamed partition that you just "cloned to".
Can the Mac now boot from the upper partition?
If so, open Disk Utility and examine things. If you now see TWO bootable partitions (upper and lower), ERASE the lower partition.
When this is finished, you will now have your bootable copy of Lion on the upper partition, and the lower one will be "erased and empty" -- i.e., no data.
Now, re-open Disk Utility and choose the partition tab.
Can you now re-size the upper partition?
Can you delete the lower partition?
This is only what I would try -- no promise of success.
If none of this works, time to back up the drive with CCC to another drive, then reboot from an external source, and nuke and rebuild the internal drive...