You can go into the Windows.old files and get anything that you want to keep. I rely on this feature to keep all my documents, pictures, contacts, bookmarks and such. Then after I have copied everything I want to save into their respective files I remove the whole Windows.old file.
The way you remove it is to call up the Windows Disk Cleanup program. Have it scan your system drive. Then after it does that click on the "Clean Up System Files" button. Have it scan again and it will bring up the Windows.old file. Check mark it and have it delete it. If you just try to delete the file Windows won't let you.
Vista and Windows 7 both do this when you do a clean install over a previous windows installation. Instead of just deleting everything it saves your previous installation into the Windows.old file. I call that an extremely cool thing.