Step by Step : Upgrading to Windows Vista

If you decided to upgrade copy of Windows XP to Windows Vista, in place, then you will get the right help here.

Typically launch Windows Vista Setup from within Windows XP, for doing so, insert the Windows Vista Setup DVD into system drive. The Setup routine should auto run, and the window shown in image below will get displayed.
Click Install Now to continue. If you want to get online the latest updates for installation in the next step, it's asked to you. Microsoft will be improving Windows Vista and certainly some updates available by the time so you should always go for this option. Setup will search and download any updates.
Setup will proceed same as during clean installation, and enter the product key, agree to the EULA, and carry on. When the 'Which type of installation do you want?' window will occur, here is the process change.
Here one has to select Upgrade option. Then setup runs compatibility check to determine whether any of the hardware or software will need to be reinstalled or will work well after the upgrade is completed. After that Setup will present with a Compatibility Report, as shown in image below. The result will depend on how older is the system you are upgrading.

Setup will continue same as per the clean installation and unlike previous Windows versions, Windows Setup backs up the settings, data, and application information, performs a clean install of the OS, and then copies everything back in a way in which it should all work as it did before. After Setup is complete, the system will reboot.

In place upgrade skips over a few steps, include those where one has to configure user name, password, display picture, desktop background image, and machine name, because those are there in the previous Windows version. Setup jumps right to the Automatic Updates phase described in the clean install and then the time and date settings. After you click the Finish button and Windows Setup tests the system performance and loads Welcome Screen.

If everything worked out good, you can access previous user account and access a desktop that looks like the one you had configured in Windows XP, as shown in image below.

Look familiar? This desktop was upgraded from Windows XP.

One should test each application to see if everything works fine mostly for data and applications that you need most. For example the web browser, installed and configured in Windows XP, have to run fine after an upgrade to Windows Vista.