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I think what you are trying to do SHOULD work but I have two suggestions:
1) Run the Vista Upgrade Advisor on XP. Get it from here
http://www.microsoft.com/windows/products/wind owsvista/buyorupgrade/upgradeadvisor.mspx
This program runs on XP and tells you if your PC is capable of running Vista and will point out any issues and maybe things you need to do BEFORE upgrading to Vista (more memory etc).
2) If you do want to upgrade to Vista then consider going for the Business version as an upgrade from XP Pro to Vista Business is a straight upgrade in place and Vista can go right over the top of XP.
I have a "test" machine and I actually did an upgrade from XP Pro to Vista Business and it kept all my applications, settings and so on.
Took a while (2 hours?) but I was fairly impressed.
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