This is one of the hazards of purchasing a computer with the OS
and software pre-installed.
Legally, the OEM has met it's contractual obligation to Microsoft
by providing a means of returning the PC to its ex-factory state,
whether it's a Recovery CD or a Recovery Partition. They are not
legally obliged to provide a true installation CD as part of the
sale.
Reputable, customer-service aware OEMs, like Dell and Gateway, do
provide a BIOS-locked, full OEM installation CD, that does permit
custom installations and repairs. Small, privately owned shops that
sell custom-built systems with OEM licenses also provide generic OEM
installation CDs that are capable of making repairs without first
wiping out everything on the hard drive.
Many uncaring OEMs, such as Compaq, HP, and Sony, however, in an
effort to save pennies and reduce their support costs by having to
hire support people that can only say "Boot from the Recovery CD to
return your PC to its original condition," provide only a CD bearing
a disk image of the hard drive as it left the factory. These
Recovery/Restore CDs, as your friend discovered, cannot perform
normal installations, nor can they be used to do any sort of repairs
or customizations. They can only wipe out the hard drive and store
it to its original, pre-purchase condition.
If you are contemplating the purchase of a PC with the software
pre-installed, be careful to ensure exactly what type of CDs come
with it, and what your repair/recovery options are before buying.
If a sales clerk tries to tell you that the Recovery CD method is
better or easier, run - don't walk - to another store where the
sales personnel can at least spell "PC."