My first question is - why do you think that windows 7 is an upgrade from XP? If anything, windows 7 is a down grade - windows 7 uses more CPU, memory and video card resources then XP. That makes windows 7 a downgrade. If you want to downgrade your computer to windows 7, I recommend buying another hard drive, and install windows 7 to that drive. That will give you 2 separate versions of windows to play around with. If you have a money, consider buying a shuttle bay, so its easy to swap the drives out.
Windows 7 is great! But I am just wanting to let you know that make sure your computer has at least 3gb of ram. Windows 7 and Windows Vista don't run very well on computers with 2gb and less (I learned that when I upgraded my Win XP laptop which had 2gb of ram).
By installing an operating system that uses more memory, you really downgraded your computer. Think about this - lets say you have a car that gets 20 miles to the gallon. Would you trade that car in on a car that gets 10 miles to the gallon? Both cars do the same thing, they get you from point A to point B. But with the "upgraded" model, its going to cost you twice what the other car would have.
If you are going to do a fresh install, you will need to buy a OEM version. The upgrade will not work on a PC without an OS, even if it is Win 7 on it.
Read sometimes ago that if you upgrade from Vista to Windows 7, there will be some missing features. Bottom line, it is best to do a complete installation. Yes, Windows 7 is better and faster according to my personal experience. So far I do not know of upgrading from XP to Windows 7.