Yeah you should be able to use the hard drive (so long as they're both SATA or IDE). Obviously you can't use a SATA on an IDE and vice versa.
For the prupose of installing Windows 7, start with that. No need to run the recovery discs really. Unless you wanted to do an Upgrade install so drivers would be in place (which you'd probably want to upgrade anyway). Clean install is always best anyway, especially if there are predetermined partition sizes the recovery discs will assign.
Just install Windows 7 and get the drivers for the laptop from the manufacturers web site.