Ed Bott published a very detailed post about the Windows 7 upgrade issues; Here’s it goes like this:
What's the difference between the full and upgrade versions?
It’s all about the product key. When you enter the product key, the setup program checks to see whether you installed the product on a clean system that didn’t previously have any version of Windows installed. If the answer is yes, it blocks you from entering that key.
What happens if I try to do an install without a product key, then add the product key from my upgrade package later?
Does the double-install trick made famous in Windows Vista still work?
As far as I can tell, yes. The short version goes like this: Boot from the upgrade media and do an installation without entering a product key. Then use the same media to “upgrade” your brand-new installation. I’m still testing this scenario but it seems to be supported. The technique is essentially unchanged
How about 32-bit to 64-bit upgrades?
You can’t run the 64-bit installer from an existing 32-bit Windows installation (or vice-versa). Here’s how you have to do it instead. Start your computer using the 64-bit installation media. When prompted, choose the Custom installation option.
Full Article: ZDNet
Source:→ Paul Thurrott