The retail upgrade boxed version contains both 32 bit and 64 bit disks, so no real reson not to. You may want to add more ram later and then it's a must.
When upgrading from XP an inplace upgrade is not possible even if it's 32 bit, a clean install is a must.
Use the W7 Easy transfer Wizard to save your files and settings.
To use the W7 Easy Transfer Wizard in XP:
Browse to the DVD drive on your computer and click migsetup.exe in the Support\Migwiz directory.