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In general, speaking from Windows 3.x on up, I have had very poor results with upgrading Windows. I always recommend starting with a blank slate. In your situation, which is a somewhat unusual "upgrade" (which the Windows installer may even possibly refuse to do) I think that advice goes double.
If you can afford it a great option is to just get a new hard drive, install, and then have the old drive around as a slave. You can move your files over at your leisure and you get the extra space. 40GB drives are going for about $50 at Newegg.
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