From what you have said it doesn't sound like you are currently backing up your important stuff.
So what I would suggest is that you go and buy a 1TB hard drive and an external hard drive case. Remove your existing hard drive and replace it with the new 1TB drive. (Don't worry it's a straightforward swap) Then fit your old hard drive into the new external hard drive case. Put Win7 on the new drive (64 bit version if your system can take it) and your old drive now becomes your external back up drive. You can copy your important docs. back onto the new hard drive once your have installed Win7. Once up and running you can then clear the old drive of all the unwanted rubbish, including the old operating system. Cost for this is probably around £70. You could also use the opportunity to fit some extra RAM as the 64bit version of Win7 recognises more that 4gigs of RAM.