As Zoredache mentioned, the best install is a fresh install. But you should also take a few points into consideration:
Windows Vista upgrade path is the
safest of all possibilities.
Microsoft offers a direct upgrade
path, meaning all applications,
settings and files will be intact and
in working condition. Being that
Windows Vista applications are
generally Windows 7 compatible, this
option doesn't give you a lot to
You may want to uninstall anything
that you don't need right now and
have the ability to reinstall later.
You should follow with a full disk
defrag. This is really not necessary
for your upgrade path, but it's the
equivalent of cleaning your house
before moving in new furniture.
The above however is mandatory for
those that may already be giving you
problems under Windows Vista.
Applications or services that you
know are troublesome should be
uninstalled/disabled before an
upgrade. This is true of any OS
upgrade, no matter how direct it
is... no matter what operating system
it is (from windows to Linux, to
Windows XP upgrade path is not direct and will not retain your applications working status. Your current XP installation will be kept on a special folder and thus any application depending on the registry or user specific settings is rendered nonoperational.
It may be an interesting option if you have a lot of stuff to backup, but nowhere to put it (no free CD/DVD or other backup media). Otherwise you should not really try an upgrade from Windows XP.
But if you do (because of the above reason, or any other), uninstall as many applications as you can to reduce the size of the XP installation and thus render the final folder smaller in size.