You got it both right and wrong! In case you upgrade your Windows Vista to Windows 7 you will have Windows.Old file created for you through the installation process, but if you install the windows 7 and through the process of installation tell it to reformat your hard drive all your files will be lost and you will not have that Windows.Old file created, instead the installation process will wipe off your hard drive and install a clean Windows 7 OS for you. Now just a word of caution, even if you are planning to only upgrade to Windows 7 it is crucial to make a back up of all your important files through whatever your back up procedure is before upgrading. You can use "Vista Back up and Restore Center" to easily back up your files. Just click on Vista Start Button then type Back up in the search box and it will find the application for you, clicking on that will open the application that in turn will give you many different options to chose from. Please take a look at the the links I have sent you, if my answer was not clear enough, those links can sure help you understand what the procedures are. I hope this helps!