Why are you still messing with XP when trying to reinstall Windows 7?
Are you aware that you are to boot the installer to install an OS? How to Boot your Computer from a Bootable CD or DVD
Boot the Windows 7 installer, select Custom install, then use the Drive Options to delete all partitions and create New as you wish, or just click Next to have the installer do it for you. Illustrated steps here: Clean Install Windows 7
If this fails post back the exact error or problem and at which step it occurs.
Where did you get Windows 7? How is it being activated? Do you have a DVD drive?
There are different ways to handle drivers
and be assured of getting a perfect install detailed here
which apply even to your retail install.