W7 OEM discs are self installing. When you put the disc in the drive, boot to your cd and just follow the directions. W7 will format the drive for you and do all of the install. You will end up with a clean drive and fresh os. All of the base files you need are on the OEM disc. Just make sure you download any driver files for your motherboard and gpu BEFORE you do the install - put them on a thumb drive or cd so you have them handy after your base install. Also, be sure to check your motherboard specs to see if your current bios supports W7. If you have an older machine (which XP tends to indicate), you may have to update your bios BEFORE doing the W7 install.
WARNING: This will erase ALL data on your hdd. Make sure you back up any data you wish to keep BEFORE installing W7.