Hi,
If you can - Win7 is the way to go.
I doubt though, that an XP system will be totally compatible.
Download the Win7 Compatability Advisor tool from here and run it to find out.
http://www.microsoft.com/download/en/details.aspx?id=20
To run 64 bit Windows you need a 64 bit capable CPU ( Processor )
Yours will only be 32 bit I suspect ( unless you have 64 bit XP installed ? )