This is because you are 'applying' Windows Install Media as an Operating System Image instead of using Setup (i.e. applying as a Operating System Install Source).
Even though Windows Vista/7/2008 source are captured as a WIM, you must either install using setup, or install using setup and capture your own custom WIM before deploying via SCCM OSD
So just import the OS as an Operting System Install Source and try again, you should be fine.