Follow these instructions for performing an upgrade from XP to Windows 7: http://windows.microsoft.com/en-us/windows7/help/upgrading-from-windows-xp-to-windows-7. Essentially you are running a custom installation so your files won't be saved to Windows.old, you will need to perform a backup. The step-by-step tutorial will cover how to backup using Windows Easy Transfer and walk you through restoration after installation has completed.

Cheers,
Tara