I am seeing the same problem reported on this mailing list back on 02 sep 2011 (http://www.mail-archive.com/linux-fai@uni-koeln.de/msg04330.html).
The issue was that setup-storage was not ignoring secondary disks which had LVM configured on them (I have the debug output). At that time the suggested solution was to update setup-storage to it's latest version. From 3.4.7 to 3.4.8. What I want to know is can I upgrade setup-storage from 3.4.2 to 3.4.8? I only use this version of FAI because no newer versions are provided for Ubuntu lucid (10.04.04 ). Thanks for all the great work. Regards