Welcome to AnandTech Forums.
1. It OK but there are better solutions.
2. Yes (provided it is a version of Win & that supports Aero).
3. There is No in-place upgrade from XP to Win 7.
Back up Win XP to another HD.
Install Win 7 on top of it so it will accept the upgrade version.
Once it starts it will wipe out XP and do a clean install of Win 7.
Application have to be reinstalled from the original CDs to Win 7.
Data can be copy from the XP backup that you did before.
Read this thread too,
http://forums.anandtech.com/showthread.php?t=2037123
.