The W7 installer does that when you do a clean install over an existing Windows Installation. Vista does the same thing. It does this in case there is something you don't want to lose.
First check the files in Windows.old to see if there is anything you want to keep. If there is Cut and paste it to wherever you want it. Then call up "Disk Cleanup" in the Accessories - System Tools menu. Have it scan your W7 drive. After it does that click on "Clean up system files" and have it scan the drive again. One of the things you can delete there is Windows.old. Put a check mark there and tell it to delete it. It'll get rid of it for you.
If you just try to delete it Windows will stop you from doing it. You have to do it through "Disk cleanup"
Update: I forgot to mention that I think Disk Cleanup calls it "Previous Windows Version" instead of Windows.old. What can I say? When I turned into an old man I developed a bad case of CRS ( Can't Remember S*** ).