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It’s not very intuitive, but the real problem is not the big red error message. It’s the smaller text:
The type of database your Drupal data will be stored in. Your PHP configuration only supports a single database type, so it has been automatically selected.
You don’t seem to have the Postgres PHP extension installed, so Drupal is not detecting your Postgres instance. The error is it trying to connect to MySql. You can install it with:
sudo apt-get install php5-pgsql
Once that is installed, you should now be able to select Postgres as your database.
