Format the HDD in your laptop then boot up using the Windows 7 DVD and then when prompted by Windows 7 inser the old OS disc. This is all that is required because MS are only going to check that you have a valid Windows CD (XP or Vista)
Won't that disk have to be a non OEM copy or is Win7 different in this respect ? Not that I know from experience but remember reading, and posting the link here this weekend, that w/ XP, OEM copies wouldn't work. Since upgrades are always more expensive then another OEM, I just always went that way.