You should first backup all of your important data.
You can also go with the easy transfer, there is a very well planned out tutorial on the microsoft site:http://windows.microsoft.com/en-US/windows7/help/upgrading-from-windows-xp-to-windows-7
Please refer to Microsoft official site for Windows 7 Compatibility with your hardware and software (There you will find out about hardware and software compatibilty.)http://www.microsoft.com/windows/compatibility/en-us/default.aspx
There is a pulldown from which you can choose "hardware" and "software".
At this point you can run the Windows 7 upgrade DVD. Depending on your hardware it can take up to several hours.
Let me know if this helps!
Windows 7 Client Team Support