1) I have a purchased version of XP with serial number. Can I purchase the upgrade version of win7 home premium, do a clean install on new hard drive but still use xp currently installed on the other drive? In short, does upgrading a microsoft OS invalidate the older OS you purchased?
Hard to beleive xp is from 2001 and its support was dropped in mid 2010. There is no upgrade version to go from xp to w7, though you can upgrade to vista and then xp. Depending on monies etc, i have been totally satisfied with my w7 pro from release day (I had XP at that point, and it took me over a month to do the dread install even though i had blank hdd's handy), so i recommend pro over home, though ofcourse pro is more costly, and may just be my habit from the awesomeness of xp pro.
I doubt many of us get what you mean by invalidate. You cant use an upgrade version of the OS on a fresh drive, put simply, upgrade version are just for upgrading AFAIK (I make this assumption because the upgrade version is cheaper).
What feels best to me, for you is to just buy and install a blank hdd, as a boot disk, and install a full version of w7 (home for the sake of argument), and you'll be suprised, you might just like it, and if you dont(assuming you copied to an external hdd what you wanted before disconnecting the xp drive), just reconnect it, disconnect w7, and your pc will be as if you never had w7 without having to worry about your dataz.
All of the above are aided by owning a usb harddrive, for bkup/copying ur favourite files.
EDIT: if you can manage unpluging hdd's inside the case, and changing 1 bios setting (you wouldnt even need to change it if it was set to boot drive C, drive D for example where c is w7 and D xp, like that it will just boot w7 unless its disconnected, i know the pros here would call it a hackjob, but its much simpler than making dual boot and mucking it up.
EDIT2:
I want to play this VERY safe.
Its not really an upgrade if you disconnect the xp drive, and start with a fresh drive and fresh install of w7. - Undesputably your safest option imho. Safer even than reading that link lol.