Since you need to back up your files externally anyway, and a clean install is superior to in-place Upgrade, I would consider doing a
Clean Install Windows 7
But you can try the in-place Upgrade first to see how it performs for you, although you should back up your files to be safest. Use an external or another internal HD (unplugged during upgrade), DVD's, flash stick, or up to 7gb free storage with each Windows Live ID using Skydrive.