You cannot upgrade from XP to 7. You either have to do a clean install or a wipe and load migration which is a clean install with your data included.
Personally if you have a large hard drive I would use a tool such as Easus Partition Mananger Home available for free from download.com to create a 50GB partition on your current hard drive.
Install Windows 7 to this, that will make your computer dual boot giving you the option to either boot into your Windows XP OS or Win 7 and no data or programs are lost.
You can 'upgrade' but it's really recommended that you do not.
By upgrading to Vista and then 7, but obviously you then get the remnants of XP and Vista inside your 7 install, which will come back to bite you eventually. Wipe and load is the best way, nothing better than a nice clean OS.
I've done upgrades to Windows 7 on formerly XP/Vista machines and the process, other than locking you into 32 bit, is pretty easy and surprisingly stable.
I do agree however, a fresh load is always the better way to go in the end ultimately however.