If you originally used the Files and Settings Transfer tool in Vista to create the back up the backup itself is only restored once all programs are reinstalled on the clean install of 7. Then the restoration should run smooth. The MS page for this is seen at Restore files from a backup
As far as the Windows.old folder once you have everything you want copied out of it and restored, except program files which need to be reinstalled fresh again while things like photo, jpegs, pc game saves, and anything downloaded as an addon may be retrieved, You can rename the Windows.old to Windows.personal and use that for storing files separately once all the sub folders are cleared out of it.
Generally since you end up needing to take ownership over the sub folders first before you can simply toss the Windows.old main folder you wouldn't have to worry about accidental deletion of it making it a safer place to keep things on the local drive at least until backed up elsewhere.
In 7 you now see the Windows Easy Transfer and options for creating scheduled backup as well as one for creating a full system image backup if ever needed. Backup Complete Computer - Create an Image Backup