Are there any previous non-msdos partitions or something configured on the storage?
You might try this KB if you haven't already: http://kb.vmware.com/selfservice/microsites/search.do?language=en_US&cmd=displayKC&externalId=1008886
Did you check the logs for any errors? Depending on the OS VI Client logs could be here:
Windows 7: C:\Users\<user>\AppData\Local\VMware\vpx\Logs
Windows XP: C:\Documents and Settings\<user>\Local Settings\Application Data\VMware\vpx
