If you are changing from XP to Win7 you will need to do a new installation that will wipe your data (but keep it available in a folder called Winold). You will lose all your installed programmes. click here is a good guide on how to do it.
As you have XP already installed you can use the Upgrade version of Win7, it is cheaper. You only need the full version if you plan to completely format your existing drive, thus eliminating the presence of the old XP OS. If you did that using the upgrade version it won't easily work as it looks for a previous Microsoft OS when it first starts.