You need to be certain that your existing hardware is capable of running W7.
If not, upgrade first.

If you follow installation instruction of windows 7, it'll guide you to format

or else

try the method given by Hector S

You don't really have to delete XP.
When you start the Windows 7 installation, it takes all of your old files and sticks them in a file called Windows.old.
If you don't need anything from your old Windows installation, just delete that folder after the Windows 7 installation is finished.