I would keep you important files like music pictures documents etc
then do a clean install if you do it from within windows it will save all your files to windows.old and when you are all booted back up you can transfer all your important files but you do not want to transfer program files you need to reinstall all your programs and make sure you get the windows 7 version for that program
Once you have moved everything out of Windows.old you can get rid of it if you want. It'll save you a lot of disk space if you do.
Go to: Start - Programs - Accessories - System Tools - Disk Cleanup.
Select your Windows 7 drive (in case you have more than one operating system).
After the scan click on "Clean up system files"
Select your W7 drive again.
After the scan the Windows.old file is one of the files you can remove if you want.
Check mark it and click Ok.
This is the only way you can get rid of it. If you try to delete it Windows won't allow you to.