I'm under the impression that there are two supported development configurations for portal. First is the remote server, where the portal server is on a separate machine. Second is the local test environment, a local portal installed under the control of the toolkit.
It sounds like you are trying to set up a local test environment on a machine that already has a portal installed. Perhaps the toolkit is refusing to install another portal to avoid conflicts with the portal you have already installed.
Ref:
http://www-3.ibm.com/software/info1/websphere/index.jsp?tab=products/portaltoolkit especially link under "setting up the development environment".
As of this writing, this is for Portal 4.2 and 4.2.1.