2 things:
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1) are you trying to flash the ROM in recovery, or hboot?
is the screen WHITE or BLACK with orange text?
white screen=hboot (this is where you flash RUU's, Radios, mods, patches)
Black screen=Recovery (this is where you flash ROMs)
it sounds like you're in the hboot screen, which you do not use to flash a ROM.
make sure you have RECOVERY installed (ClockWorkModRecovery)---this can be flashed using ROM Manager app. open the app, flash CWM, then you can flash ROMs successfully
a) pull battery
b) reinsert battery, boot phone
c) install/open ROM Manager, install/flash ClockWorkModRecovery
now you can reboot into Recovery to flash CM7 successfully (assuming the MD5Sum matches--don't know what that is? keep reading below. check MD5Sum for every radio/ROM/mod you flash onto the phone)
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2) if you ARE in recovery, attempting to flash a ROM--then keep reading:
just to make sure--i know it says "missing PG05IMG.zip file", but people forget to remove it from the card regardless.
did you remove the root required PG05IMG.ZIP file before rebooting the phone to Recovery (in the process of flashing CM7)?
also, did you check the MD5 sum of your download to make sure it was a full/good download?
if not--that's
probably what's causing the never-ending bootloop and it's a
SIMPLE FIX
(the phone thinks you're wanting it to update b/c it sees a PG05IMG.ZIP file on the root of the SD card)
simple solution=remove the microSD card, place in a computer, navigate to root of SD card, move the PG05IMG.zip file into a folder, then put the microSD card back into your phone and boot up the phone normal.
IMMEDIATELY make a backup of your "stock-rooted" ROM using ROM Manager (easiest way). this is your fallback ROM in case you flash a bad ROM or apply a MOD that doesn't play nicely with your ROM.
after it's finished backing up your phone, and it boots up--then try flashing CM7 again using ROM Manager (though i don't like using it) or just simply entering Recovery by powering off the phone then holding Power+Volume Down until you enter the Recovery screen.
ALSO: remember--the first time you flash a ROM it can take up to 10 minutes for it to fully flash the ROM & settle.
if you see the boot animation of the ROM for 10 minutes, don't freak out. it took me 15 minutes on my brothers droid-Incredible.
1-10 minutes=normal
10-15=a little more worrisome--but possible
15-20 minutes=probably a bad download or a bad flash. (wipe everything 2-3 times to ensure it flashes clean)
want a step-by-step guide? here ya go. sorry if it's jumbled, i just made it as quick as i could (at work)
1) remove the microsd card, put into computer & navigate to the root of the microsd card
2) move the PG05IMG.zip file into another folder
3) insert microsd into phone, boot normal. immediately make a BACKUP using ROM-MANAGER
4) download' hashdroid' from the android marketplace & check the MD5Sum of the CM7 download you have (compare the MD5sum of that which is shown in HashDroid to that which is shown from the download source)
5) if the two match, reboot into recovery. wipe data, wipe cache, wipe dalvik (do each 2-3 times)
6) then apply zip from sd card
7) choose zip from sd card
8) navigate (using volume buttons) to the CM7 Rom & select it (using power key)
9) navigate (using volume buttons) to "yes" and press power button to confirm
then let it do its thing. press power to confirm 'reboot system now' and let it sit for at least 15 minutes before you freak out
i highly doubt you bricked it---so you don't have to send it back. everyone has this scare--it's just a bootloop. seriously.
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if you do send it back--unroot it. otherwise you're probably going to get charged the full amount of the phone ($650?)