Problem installing 10.8.5 from usb - looping...

Question

My HD failed.  I installed new hardware.  Went from Hitachi (2T) to WD (4T) - temp sensor not compatible so fan loud, but that's ok...
Tried to restore from time machine backup, but wouldn't work - something about recovery partition.  Had already partitioned the new HD correctly (journaled, GUID).  Read that I might try installing OSX to the new HD from USB first, but that all I had to do was go through the 1st reboot.  Tried the stop the install at that point, but it wouldn't stop.  Finally was able to point at USB disk, but keeps trying to install and now saying installer had a problem...  Can't get the computer to start up from the USB drive even when I hold the option key down - just comes back saying there was a problem with the installation.  When I look at disk utility I see a disk2, Mac OS Base System... Can't remove it even when repartitioning the new HD again.  At a loss here on what the do now. 
My ideas:
1. Create a new bootable USB?
2. Boot to Safe mode or somehow reset the HW somehow?  PVRAM?
Help!

Answer 1

Thanks for the response.  I'm not sure about the necessity of the first suggestion - I created a bootable USB drive from the 10.8 installer which I downloaded - it was in the Applications folder.  I used a file in SharedSupport - InstallESD.dmg...  Essentially I followed the DIY part of this link:
     http://www.cultofmac.com/180925/how-to-make-a-bootable-disk-or-usb-drive-of-os-x -mountain-lion/
Safe mode - I thought I might be able to boot into safe mode from the USB - guess not.
I don't get much of an error now.  All it says is:
     There was a problem installing "Mac OS X".
     Try reinstalling.
Then there is a button for OK.  When you click OK - nothing happens.
Next to the apple (upper left) I see "OS X Installer".  Then there is a File, Edit, Utilities and Window menus.
Utilities contains firmware password utility..., disk utility..., terminal..., netowkr utility..., and restore system from backup...
When I run disk utility here I see:
     My new 4TB WDC and it's sub-entry - "Untitled 1". 
          When I look at Untitied 1 I see /Volumes/Untitled 1 mount point, Mac OS Extended (Journaled)
          4TB, used 1.11GB, 3 folders, 2 files
     SuperDrive (my dvd drive)
     disk2
          This is an apple disk image with a capacity of 1.19GB with a Apple Partition Map scheme
          Under disk2 is "Mac OS X Base System"
               This has a mount point of /, is Max OS Extended, is 1.19GB in size, and has 10,753 folders
               and 35,620 files
     8.03GB SanDisk
          Mac OS X Install ESD - this is obviously my bootable drive for installing Mac OS
I've tried to re-partition the 4TB hard drive but it doesn't seem to remove the disk2 recovery partition.  I have only re-partitioned the drive to a Mac OS Extended (Journaled), single partition...  Interestingly the 8.03GB SanDisk moved above the line next to the 4TB.  The disk2 drive is unchanged. 
Perhaps I should reformat to a different method?  or change from GUID?  Seems like there is a separate "recovery partition" that I'm not able to clear or re-start the installation even though the drive is empty - or so I thought.
Interestingly, when I try to run Terminal... it doesn't respond.  I get "-bash-3.2# " as a cursor, but it is unresponsive.
When I try to select - "Restore system from backup" there is no response - it's as if it's completely ignored.
I also just tried holding the "C" key during restart - same thing - it jumps to a window which says it's installing OSX for a few seconds, then the same error I outlined above.