Just re-read the original post.
If your installing 64bit Windows 7 and you have 32bit Vista, you will have to boot from the installation DVD.
The 64bit installer won't be able to run in a 32bit environment.
So that means a Clean install. Method One from the first tutorial above, Clean install is the second tutorial above.
So to answer your questions:
1. The Clean install with formatting the C partition will get rid of everything, leaving the new installation totally clean. The custom install will not be as clean.
2. Since your doing a Clean install you can do it during the installation, might be easier to do it before the install.
You can use Partition Wizard
, a great free program for partitioning. This is what I use. For me, Partition Wizard is fast and easy to use, I used this and did my partition adjusting before the installation. Then the installation is straight forward.
You can re-size the partition with Vista in it and it will still work fine.
If you want the windows.old folder then don't format C during the install.
If you don't want the windows.old folder then format the Vista partition during the install, using the 'Drive options (advanced)' in steps 7 & 8 in the Clean Installation with Windows 7
You can format the D partition before the install. Backed up first, of coarse.
Run the Microsoft Windows 7 Upgrade Advisor
, to find out if there will be any system, program, or devices issues before you start the installation. Windows Easy Transfer - Transfer To & From Computers
, will make your program installation a little easier. You will still have to install all the programs, this will transfer your personal files and user account settings.
There are more installation tutorials on this Seven Forums sticky thread. Tutorial quick reference list for Installing Windows 7.