When you replace it with a hard drive that has files from a previous windows does that windows version go to your new laptop/pc along with it (is the data stored only on it or also bios?) or do you have to format it first or how does that work?
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You appear to be planning three jobs: replace a hard drive, change to a new version of Windows, and preserve all your old files. All easy to do.
1. I will assume that you want to do the first two things all at the same time - install a new hard drive and then install on it the new Win 7. This is a very good plan. I recommend that you first DISCONNECT your old hard drive, but don't remove it from the case. When you mount the new drive in the case, just use the power and data cables from the old drive to hook up the new one.
2. Installing Win 7 on a brand new empty drive is the best plan, and easy. You have a CD-R disk with Win 7 Install on it. I presume you have an optical drive in the machine, so put the disk in that drive. Now we'll make a couple of adjustments in BIOS to start the installation. When you turn the machine on you should go directly into BIOS Setup. This usually means holding down the "Del" key while it starts up, but watch your screen in case it tells you to use a different key. After a few messages the screen will show you the main menu for BIOS Setup. You will need to move through a few of the screens and sub-menus to check things.
3. Go to the place where your configure your SATA drives. I expect they already are Enabled and one of them will show up as detected - the new one - verify by checking the name and size. Very close to that place you will see a place to select the port Mode, with choices like IDE (or PATA) Emulation, native SATA, AHCI, or RAID. Choose AHCI if possible. Back out of that menu part and find the place where you specify the Boot Priority Sequence. Most will set it to try the optical drive first, then the SATA hard drive second, and NO other options. Save and Exit to finish booting, and it will boot from the Install disk in your optical drive. Go through the entire Install process. When it offers you which drive to use, just check the size of Partition it suggests. You probably want it to use up all of the new disk's space as one large drive.
4. After the installation is complete you can shut down and re-connect your old drive, using a new power plug and a new data cable to a new SATA port on the mobo. Close up, boot up and go into BIOS Setup again. Go to where the SATA port Mode is set for this old drive, and just make sure it also is set to AHCI. Save and Exit to boot into Win 7. You will find your old drive with all its files as a second drive in My Computer, ready to use. It will have all your old applications and files on it. You can copy from there to the new drive anything you want. If you want your old applications to be moved to the new drive, look around the web for how to do this and get Win 7 to recognize them in the new location. Or, consider re-installing each application to the new drive, and THEN copying over all the old data files like documents and photos, etc.