There is no direct upgrade route from Windows XP to 7. Even though the product is marketed as an "upgrade', the Windows 7 installer will force you to do a clean install, encapsulating the existing install into a folder called "windows.old". From there, you'll need to drag any documents or data over to your fresh Windows 7 install and of course manually reinstall your programs.
With that said, you should be able to boot from the Windows 7 disc and run the install over top of the Windows XP install without having to go through the process of removing the Boot Camp partition and recreating it. Just make sure you choose the right partition to install to during the installation process - and of course, make a FULL backup of your Mac partition (and Windows XP partition, using WinClone) before you get started.