Hello Sam, welcome to Windows Seven Forums.
The upgrade will not affect your hard drive.
You can install using a Windows DVD or a USB drive. As far as I'm aware the USB drive will give you a quicker install. Clean Install Windows 7
You may or may not have to reactivate Windows as Microsoft say you would need several hardware changes at the same time such as motherboard, hard drive, RAM etc. to trigger an activation request. Providing you have a genuine product key you can use the automated telephone activation service if need be. In any event you've got up to 30 days to sort out any problems arising from a hardware upgrade.
Whatever you do, don't forget to backup any important personal data - just in case.