Yes - It is possible to upgrade XP to Vista in place.
(1) RUN THE MICROSOFT UPGRADE ADVISOR and fix *everything* it tells you to.
(2) Seeing as that CD comes from Dell, I'd be a little wary about it being somehow keyed to look for an existing Dell licence.
(3) RUN THE MICROSOFT UPGRADE ADVISOR and fix *everything* it tells you to. Doing that can save you a lot of potential headaches.
(4) Back up your data AND PRINT COPIES OF ANY LICENSE KEYS you may have.
(5) ....and don't forget the upgrade advisor. Take it's advice seriously.