The Windows 7 disc will not ask you for the XP disc, nor its Product Key.
If the hard drive has XP on it, you have to do a clean install rather than an upgrade install.
If there is nothing on the hard drive you care about, you may as well delete all partitions. If necessary, you can use Diskpart to clean existing partitions.
Is your Windows 7 disk a burned disk or bought in a store or what?