Yes, the C:\Windows.old folder would contain a copy of all your files from the previous installation in it.
When the computer restarts after installing for the first time, you DO NOT
want to press a key to boot from the installation DVD again. As you have found out, it will restart the installation process over instead of finishing it. It may also mess up that attempt to install Windows 7. You may need to format and start over on the installation.
What type of Windows 7 installation disk do you have? (Ex: Retail, OEM, Student download, etc...)