After saving your BIOS changes, the computer will restart and boot from your USB Flash Drive. The installing will ask you which partition you would like to install Windows7 to. Choose the larger Partition2. Leave the OEM Partion1 intact. This is the factory restore partition which contains the original OS files that shipped with your computer. This partition allows you to restore your computer back to the way it was when you first brought it home.

I believe rebooting and holding down ALT/F10 will start the Acer system recovery utility.

Presumably since you performed a factory reset you have already backed up your important files elsewhere. The first step would be to obtain a Windows 7 32-bit disc or ISO (which is a DVD image) from somewhere (the edition i.e. Starter, Home Basic, Home Premium, Professional or Ultimate doesn't matter; see below).

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Unfortunately ever since the removal of the Digital River downloads, the only to obtain said ISO for free is from Microsoft, if you happen to be a non-OEM user. For an OEM user the only way out is to contact the system manufacturer. So if Acer can't or won't send you recovery discs, you'll have to contact someone and borrow their disc or obtain the ISO from somewhere. When you have the ISO it'll most likely be for another (i.e. Non-Starter) edition. If you're going to the ISO to a disc you can use the or the before doing so. The first will make the installer universal in that you'll be able to install any edition of Windows 7 from it, while the second will allow you to switch from whatever edition you obtained to Starter.

The easiest and fastest method though is to use to create a USB installer from the ISO. Once the stick is ready, you can go into the sources folder and simply delete the ei.cfg file. Boot from the disc or USB stick as the case may be by changing the boot order in the BIOS, and if you've deleted ei.cfg you'll see a screen like this: Simply select Windows 7 Starter,, enter your key when asked and proceed. It should activate automatically once you connect to the internet, but if you have any problems use the phone activation method and contact Microsoft. In most cases you won't even need to speak to anyone and the automated system will be able to guide you through the process.