Before even thinking about upgrading I would run the advisor to ensure your system is compatible with Windows 7;
http://windows.microsoft.com/en-us/w...pgrade-advisor
Drivers can be a problem, this will tell you if you have a driver problem, then you go to the manufactures page and see if they have Windows 7 drivers for your device.
Normally installation of Windows 7 is a "Clean install", it will put everything currently on the computer into a folder called "Old Windows", then you can retrieve what you need. However, you will have to re-install any programs that are dependent on Windows, as they will not work.
MS does not support a direct upgrade (preserving programs) from XP to Windows 7, however, it does from XP to Vista then from Vista to Windows 7, but I would not recommend that.