Attempting to install Xcode 3.2.6, the version I currently prefer, it seemed to silently fail. I wasn't sure why. I did notice running the installation wizard; that at the point of selecting Installation Components the Xcode Tool Set component (Usually compulsory) was greyed out and marked as skip.
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After some research, It seems support for Xcode 3.2.6 on Lion is somewhat neglected as Xcode 4.x is the future. Long story short I needed to use 3.2.6. It can be motivated to install on Lion.
After mounting the developer tools dmg you can open a terminal and issue the following commands to successfully install Xcode 3.2.6 on OSX Lion (10.7)
export COMMAND_LINE_INSTALL=1
open "/Volumes/Xcode and iOS SDK/Xcode and iOS SDK.mpkg"