Found a workaround suggested by x23piracy and Stimpy here:
At the step when Windows 7 setup prompts to create and/or select partition to deploy Windows 7 to:
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unplug SanDisk Extreme USB3.0 flash drive from USB port;
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click Refresh button;
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setup will still indicate that Windows cannot be installed on hard drive, just ignore it;
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plug back SanDisk Extreme USB3.0 flash drive;
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click again on Refresh button;
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now you can create if required new partition for Windows and the setup will automatically create 100MB System Reserved partition;
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proceed and complete Windows 7 installation.
Thank you, x23piracy and Stimpy!
I should say it is far from ideal, and I am quite disappointed as new owner of SanDisk product because this issue has been reported to SanDisk at least in February 2013 if not earlier. But at least I don’t have to just give up on it yet.