Sold my MacBook Pro Lion, how to reset OS installation?

It's much easier to just reboot to the Recovery HD (restart and hold down command and R).

Then use Disk Utility to erase the hard drive. Everything will be gone and if you want to be paranoid, you can zero the entire drive one or more times. Once that erase is done, you can re-install Lion from Apple's image over the network. You could also use the DVD at that point, but the erase is quite easy and best done using the Recovery HD on the Mac's drive.

I don't think you'll need to sign in to get Lion, but if you do, then you can just put Snow Leopard on the Mac. That would be the best thing to do licensing wise, since the App Store terms require you to erase software before selling your Mac.