You have to perform a clean installation of Windows 7 when using the upgrade version to upgrade from Windows XP.
But, if you install the Upgrade version of Windows 7 Home Premium on a Windows XP Pro system on a different partition, does doing so invalidate your Windows XP Pro license and make it impossible to have a dual-boot system unless you buy a new XP license?
No one on the web seems to know for sure. The licence agreement for Win7 says that this is the case. If you upgrade from Windows XP to Win7, you lose Windows XP.
When you upgrade you give up the right to use your previous OS, but the key is still valid otherwise you wouldn't be able to reinstall.
In practice, in the past OS's there was no problem running both on the same machine. I doubt MS would be too concerned with someone keeping the old system running, after all you can only use one at a time.
Is it legal? probably not. I doubt MS would tell you it's ok to do it.
Thanks for the comments. When my Family Pack of Win7 Home Premium arrives, I'll try installing it to a new hard disk drive that I bought for it and post back the result. Windows XP is installed on the C: drive.