Unable to create Android Virtual Device

Simply because CPU/ABI says "No system images installed for this target". You need to install system images.

In the Android SDK Manager check that you have installed "ARM EABI v7a System Image" (for each Android version from 4.0 and on you have to install a system image to be able to run a virtual device)

In your case only ARM system image exsits (Android 4.2). If you were running an older version, Intel has provided System Images (Intel x86 ATOM). You can check on the internet to see the comparison in performance between both.

In my case (see image below) I haven't installed a System Image for Android 4.2, whereas I have installed ARM and Intel System Images for 4.1.2

As long as I don't install the 4.2 System Image I would have the same problem as you.

UPDATE : This recent article Speeding Up the Android Emaulator on Intel Architectures explains how to use/install correctly the intel system images to speed up the emulator.

EDIT/FOLLOW UP

What I show in the picture is for Android 4.2, as it was the original question, but is true for every versions of Android.

Of course (as @RedPlanet said), if you are developing for MIPS CPU devices you have to install the "MIPS System Image".

Finally, as @SeanJA said, you have to restart eclipse to see the new installed images. But for me, I always restart a software which I updated to be sure it takes into account all the modifications, and I assume it is a good practice to do so.