Yes you can delete XP and recover its space for Windows 7 although you must first convert the Logical partition to Primary so it will mark Active to receive the System boot files.
However apparently you incorrectly installed Windows 7 from the XP desktop which locked out the C letter so Windows 7 could not assume C whenever booted as it does when correctly installed from boot.
If you don't mind running Windows 7 on D, then rightclick on it using free Partition Wizard
bootable CD to Modify>Set partition to primary, click OK. Video help on how to set partition as Primary or Logical.
Rightclick again on Windows 7 partition to Modify>Set to Active, OK.
Next click on Win 7 Disk # to highlight it then from Disk tab Select Rebuild MBR, Apply all steps.
Reboot, if Windows 7 doesn't start on its own boot into Windows 7 DVD or Repair CD to Startup Repair - Run 3 Separate Times
until Windows 7 starts on it's own and holds the System Active Boot flags.
You can now boot back into PW CD to rightclick XP to Delete, OK. Then rightclick Windows 7 partition to Resize, slide left border to left to take up deleted XP space, OK, Apply both steps: Partition Wizard Move/Resize Partition Video Help.
Have DVD/CD standing by in case you need to repair after resizing on the boot sector.