I think we may be getting our lines crossed here. An UPGRADE version of an OS needs another OS already installed on a hard drive. And it has to be a previous version in the same line. E.g. Win 3.1->Win95->Win98->WinME->WinXP.
And most upgrades will only go back so many versions. You cant install Windows XP upgrade on a Windows 3.1 system. If you try to install the full version it will make you wipe the harddrive first.
Yes, the upgrade disc actually has the all the new OS files. But unless you know how to open, hack and recompile the setup program you cant use it by itself.
I think the activation program might work a little different on an upgrade version of XP. It may want an old code already in the registry to run properly. This tells microsoft what you were using and that you didnt try to get away with paying $100 less for a FULL OS install.
If you are just upgrading, you only need the serial for the new OS. The old one isnt really valid anymore, though you may be able to find it in your registry.
In the long run its better to have the full version. If you have any problems you wont have to reinstall two OS's. Though I dont think microsoft has any kind of a trade-in program.