What is on your D: partition labeled "AcerData"?
If thats a recovery partition, you should check with acer web support to see how to restore the system to "new". It will reinstall whatever OS came with the PC and all the necessary drivers
, including any software that came with PC (although most is usually unwanted).
If the windows 7 partition is marked as the "Active" partition, that might be why it won't allow you to delete it.
Go into disk management, check which is marked as active and if its the 7 partition, right click on XP's partition and choose it to be the active partition.
Hope you get it sorted out.