If you look at the status of each volume, you'll see that the XP volume is your System volume. This is the volume which contains NTLDR. Windows won't let you delete it because of that.
I HIGHLY recommend you back everything up before trying to fix this.
First, you'll need to use a third party tool like GParted from a LiveCD to actually delete the XP partition. Create a 100MB partition in this space and make it active. Then you should be able to grow the Win7 partition into the empty space. The small partition is going to be the new system volume, so in the future you can add/delete partitions without going through this again.
You may notice your computer no longer boots! That's because NTLDR doesn't exist anymore. Run Windows 7 setup and perform a Startup Repair. Hopefully it will find the 100MB partition and make it the new system volume. It might also just make the Win7 partition the system volume, in which case you'll just have an extra tiny partition around. If that bothers you, you can delete it then use GParted again to grow the Win7 partition.