Can't directly upgrade from XP, have to do a custom installation. Before that, you have to do following:

a). Download Windows Easy Transfer for transferring from Windows XP (32 bit) to Windows 7 to move files and settings to another location before install Windows 7. After you re-install the applications, you can easily run it without any setup again.

b).Download and install Windows 7 Upgrade Advisor to conduct a check for all your applications and hardware compatibility.

After installation, some applications don't work any more. Such like Live communicator 2005, VPN...

Solution:

1. Uninstall all MS Virtual PC version if you have.

2. Download Windows XP Mode (500Mb) .(Have a Genuine Check process)

Windows XP Mode runs many older Windows XP productivity programs and that are not natively compatible with Windows 7, thus helping realize cost savings and reduce possible operational downtime by extending the life of existing software.

http://www.microsoft.com/windows/virtual-pc/download.aspx?runGenuineCheck=true&system=6&lang=4&buttonClicked=winXpMode

3. Download file Windows6.1-KB958559-x86.msu and Windows6.1-KB977206-x86.msu in the above same webpage and install.

4. Enable Virtualization Technology in BIOS and Power off your computer.

5. Restart and Install old application in Winxp Mode from USB attaching or other location.

6. Directly run such applications under win7 without Win XP again