I'm trying to think what I should recommend for you.  For me it would a piece of cake, but its what I do for a living.

I'll give you a couple of scenarios and let me know which you feel comfortable with and we can move from there.

1st.  Your PC is already 4 years old, so the most important thing to do right now is to back it up.

Hard drive reliability is suspect after 3 years.  If you are lucky you may get 5-6 years out of a hard drive and that is pushing it.

So what to do? Here are a couple of scenarios for you.

Scenario 1: Clone your existing drive to a new hard drive, with this method you can clone your entire hard drive to a bigger drive in 30mins or so and  you will be up and running with a brand new hard drive and lots of disc space.  Depending on your budget I would recommend a Western Digital Black series drive (best performance), Western Digital Blue Series (Good Performance), Western Digital Green (Normal Performance but the cheapest).

Scenario 2: Clone your existing drive to a new hard drive, boot into Vista and insert the install disc for Windows 7 this method will first scan your existing installation and warn you of any incompatibilites.  Make sure to use Professional or Ultimate as these versions will allow you to run many XP programs in Windows XP Mode, this option is not available in Home Premium.  This is the easiest upgrade route while retaining as much of your old system as possible.

Scenario 3: Remove old hard drive, install new hard drive, install Windows 7.  Purchase an external hard drive enclosure and put your old hard drive in there, you will have access to your old data but not be able to run the old installed programs, but you will have a clean fresh installation.

Tools:
Windows 7 Compatiblity Checker.
http://www.microsoft.com/windows/compatibility/windows-7/en-us/default.aspx

Cloning - use Clonezilla its free and does the job.
http://clonezilla.org/downloads.php

ImgBurn free burning application you can use it to burn the Clonezilla ISO image to a CD or DVD
http://www.imgburn.com/

 

If you dont plan to do any of the mentioned scenarios above, at the very least, go out and purchase an external hard drive and backup everything from your current hard drive to that one.

My motto is, "its not a question if a hard drive will fail, but when will it fail?" all hard drives fail, that it the nature of a mechanical device such as a hard drive.

I hope I didnt over whelm you.