There is a legitimate two step instalation process to install an upgrade version
You install windows-7 from the cd, but do not initially enter the product code or activate.
After it installs, you have a fully functional OS for 30 days.
Step 2 is to insert the dvd again, while running Windows and then do an upgrade.
This time, enter your product code, and activate.
After activation. you may delete the initial version which is named windows.old.
This process was needed to accommodate the situation where one wanted to upgrade from a 32 bit OS to a 64 bit OS. It was given to me by microsoft support when I was trying to do just that.
You will never be asked for your old XP dvd or key.
I see no problem in using your old XP on the same machine in a dual boot environment. It is probably not proper to use the old XP on a different machine.
As far as I can tell, there are only two different windows-7 dvd's; 32 bit and 64 bit.
The differentiation for home premium, business, ultimate, oem, retail, and upgrade is contained in the product code, not in the dvd.