Although replacement hard drives are often formatted and ready for use immediately after installation, you may find that your replacement hard drive doesn't appear as a valid volume for installing the OS.
Before assuming that there is an issue with your replacement drive, make sure it has been properly formatted by initializing the drive through the "Disk Utility" program. You may either start up from another volume like the Installation DVD that came with your computer, or launch "Disk Utility" from the menu of the Installer.