I was having the same issue and found the following in HP's forum:
found out that Intel removed USB 2.0 chipset support from the Skylake chipset.
This means that normal USB installs for windows will not work.
The Microsoft Windows ISO doesn't have the native USB 3.0 drivers either, and that is why your USB KB and mouse go dead.
So you have to add the USB 3.0 drivers into the Windows ISO.
Intel came through on this one. They have a utility that does all the work for you.
Run this and point to your USB Installation media and hopefully, W7 will install.
Be sure and read the "Read Me" file on the download page; it will refer you to a Microsoft tool that you will need also.
It appears that this is working from many people, but it did not work for me. Perhaps I needed the newer build of Windows 7.