This article describes how to remove Microsoft Windows XP after an upgrade was completed successfully by using a qualifying upgrade path, including the successful creation of the Windows XP removal files (such as Backup.cab and Boot.cab) during the initial upgrade.
Use the Windows 7 upgrade version and you should be fine. Removing XP and installing 7 from scratch is a much more tricky exercise and likely to require drive formatting of some description.
Make sure you have backed up all your important files as installing Windows 7 over XP all but wipes the disc. There are a couple of ways to do this comprehensively. Also root out the installation discs of the programs you will want to reinstall along with any product keys. Disconnect any printers, scanners or external hard drives
Then simply insert the W7 dvd into your computer drive and follow the on screen prompts. Your computer will reboot a couple of times and you are done. Should take no more than half an hour depending on your setup.
Then follow the instructions to delete the windows.old file which takes up a lot of space and reinstall all your old programs. Reconnect your printer etc. and Windows 7 will fetch the drivers automatically and you are good to go!