As promised here is the answer. This is straight from my friend & collague who is Chief Security Advisor w/ Microsoft Canada...
The short answer is that an upgrade package generally needs to install on top of the existing OS.
There is an exception to this. Many of the upgrades will install on a clean hard drive IF you can provide the original media for a qualifying upgrade product.
I.e. the Windows XP or Windows Vista installation on a clean hard drive will prompt you for a disk from a earlier operating system during the setup phase. This is designed for people who have upgraded their version of Windows and need to re-install after a hard drive upgrade etc, without installing the old OS as well.
Cheers,
Drew
This is an e-mail I just sent to "Dean" at Microsoft:
Dean,
OK. Great. Now we're getting somewhere. But this does not fully answer my (our) questions. You state: "then you would need an existing operating system on your machine." What does THIS mean? Does this mean that we cannot boot to a Windows 7 UPGRADE disc on a formatted hard drive (with no operating system of any kind installed)? If so, during the install process, will the software want proof of a previous OS by asking for insertion of a licensed XP disc?
Do you have any idea of how angry real and potential purchasers of Windows 7 are about Microsoft's reluctance to fully explain this procedure? Just go to windows7forums.com and get a taste of what's going on out there! Does Microsoft care that they are making even more people angry than already exist?
Dean, I'll make this real simple. This is what I want you to ask an expert at Presales and Licensing Department (and please tell them I don't want the simple answer they originally gave):
IS IT POSSIBLE TO BOOT DIRECTLY TO A WINDOWS 7 UPGRADE DISC ON A FORMATTED HARD DRIVE WITHOUT A PREVIOUS OS INSTALLED? IF SO, DURING THE COURSE OF THE INSTALLATION, WILL THE OPERATOR BE ASKED TO SHOW PROOF OF HAVING A LINCENSED COPY OF XP? IF SO, HOW IS THIS ACCOMPLISHED? WILL THE OPERATOR BE ASKED TO INSERT THIS XP DISK TO COMPLETE THE INSTALLATION?
That's it Dean. By answering these simple questions without hemming or hawing Microsoft will satisfy the curiosity of computer geeks everywhere. All we want is a definitive answer. Is that too much to ask of Microsoft? Whatever answer you give me will be immediately transferred (with quotes) to several web sites dealing with this issue. Inform your friends at the Presales and Licensing Department that they will anger several thousand computer users of Microsoft operating systems if they continue to be secretive about this installation process.
Stay tuned for Dean's answer which I will immediately post!