Not physically, you'll have to select "custom" and do a clean install of W7. Remember to save your data on another partition or on other media/HDD before installing W7, so you can transfer it all to your W7 system. The W7 upgrade license allows you to do this because you cannot do an upgrade install of W7 on XP.
Yes, you can use an upgrade edition (as opposed to the full retail version) of Windows 7 to move from XP to Windows 7, however treefrog07 is correct in that you have to do a custom installation. In order to keep any files you'd like to save, it's best to back up to an external harddrive.