So I assume this is a desktop PC (and not a laptop). I also assume it has a 160Gb disk, and you want to buy another larger disk, say 500Gb (or whatever).
First as TTG says, I would check your PC can RUN Windows 7 as an older PC may not be able to. I would run the Windows 7 Upgrade Advisor.
http://www.microsoft....bd9-9e51-2497c146af15
Now you need to decide if you want one or two hard disks in your PC.
If you want one just take the 160Gb out (saving all the personal files first) then put the 500Gb in, and then install W7 (and all the programs you need).
If you want two hard disks in the PC then personally I would use the smaller 160Gb for Windows and the larger one for all your personal files. There are some advantages in having Windows on one hard disk and all your personal data on another.
So save all your personal files from the 160Gb, then install W7 in place of XP (you cant upgrade it has to be a clean install so will wipe everything).
Then put the 500Gb in the case and use that as the drive for your personal files.
Then if ever you need to reinstall Windows you just need to do it on the 160Gb drive, leaving the 500Gb drive untouched.