I assume you mean the Windows 7 upgrade disk. Since they aren't available yet, there's no way of knowing for sure. But preliminary information and precedent indicate that yes, you can format over your old OS with the upgrade disk before installing Win7.
You NEVER can reformatting with an upgrade disk, the only thing that you do with this is upgrade the OS, but the size of the HDD not change.
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"Two things are infinite: the universe and human stupidity; and I'm not sure about the universe.". Albert Einstein.
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Reply to SAINT19
Good research. This screenshot of the install process shows that the Custom Install option does allow you to make changes to disks and partitions. Win7 is very similar to Vista (and where they're different, Win7 is almost always better IMO), so it would surprise me if this functionality was removed. Going way back, the only hands-on experience I have had with this was reinstalling XP Home with my Dell OEM disk (it was a CD back then ). That did allow me to reformat, using the good old command line.