Before you start, back up all your data on external media.
Microsoft does not support upgrading from XP to Win7, only Vista to Win 7. However, some third party software will support it. You can use PCMover to transfer your old XP data and programs, mostly. Once again, first do a data backup. Then do a new install of Win 7, which will save your old Windows XP system files in windows.old. PCMover knows how to move the windows.old programs to the new Win 7 install, with a few exceptions (usually any software with major copy protection like Adobe, which needs re-activation or reinstall).
However, there are restrictions. You can't go from 32 to 64 bits, too many differences. You'll need new drivers for Win7, although some of the XP ones will work in compatibility mode. But PCMover can do the job pretty well on most common upgrades.