When you put in the CD to install Vista, it'll check your system and a menu will appear giving you your choices:
If you take the upgrade path from XP to Vista what will happen is Vista will re-arrange the old file system to fit the new layout but your old data will still be there.
If you do a clean install of the OS then there will be a folder on your C drive that entitled "Windows_Old" which will contain your old program and document data. You won't be able to run your programs, but you can transfer over pics, music, and whatnot just by copying it to a new folder.
The 3rd possibility is install an additional Hard Drive and set up a Dual Boot. You'll have to shut down and restart to change OS's, but everything you have now will be completely unmolestified.
I bought the OEM version of Vista (full licences for 32 and 64 bit) because I didnt' want to have to keep my XP discs. But when I went from Vista to XP, I chose the upgrade path to preserve data rather than do a clean install. It worked fine for me. I was even prompted to upgrade/patch several programs (antivirus, video drivers, and the like) once Vista was installed. Before installing, I ran the Upgrade Advisor, fixed what it told me to, ran it again, fixed... lather, rinse, and repeat until it comes up clean... If it can't be fixed, like my old printer and boutique sound card, then you'll know that too and be can be ready with the solution. I credit the clean and problem free upgrade to having done that.
I've seen complaints about people losing stuff, and I don't doubt that happens sometimes. Though I also suspect that some individuals simply didn't know where to look. But at any rate, that is kind of silly to me because it's only common sense to do a thorough backup of anything important *before* you upgrade. And dont' forget your browser's bookmarks when you do your backups. *AND* go through your email and print/copy any messages containing licence keys for software you bought online. You paid for it once, after all. No sense in paying money for an O/S upgrade and then having to pay more money to re-buy stuff you technically already own. Preserve those licence keys!
One thing I will stress: There is an Upgrade Advisor on Microsoft's Vista website. It will tell you what is good and what isn't. Download it, run it, make a list of what it says, and fix as much as you can before putting the Vista disc in your comp. You'll save yourself a lot of potential headaches.
If you have a full version of Vista, then you'll be able to go either way. If you have an upgrade version, then you'll only be able to upgrade.