Microsoft allows using the less expensive upgrade from XP to Win 7, but it is Not in-place installation like it is from Vista.
When upgrading from Win XP you cannot keep the Applications and Data directly to the installation of Win 7.
You can use this process. Make a virtual backup of Win XP,
http://technet.microsoft.com/en-us/sysinternals/ee656415.aspx
Store the VHD file elsewhere.
Install Win 7 and let it wipe the Win XP.
You can mount the saves VHD file as a virtual drive on Win 7.
You can copy your data files, and applications that do not rely heavy on the registry,
Other applications need to be reinstalled from the original CD/DVD.
If you want to Run an XP computer too you can download the free WinXP Mode and use it seamless with win 7.
http://www.microsoft.com/windows/virtual-pc/download.aspx
After installation, the XP mode would present a clean virtual computer with activated Win XP SP3.
You can use the VHD file that was save before to copy whatever is possible to the new Win XP.
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