In theory you can do an in-place upgrade. However, there are restrictions:
1 - you can only in-place upgrade a 32 bit version of Vista to a 32 bit version of W7, and a 64 bit version of Vista to a 64 bit version of W7. Otherwise you have to do a reinstall.
2 - you can only in-place upgrade to the same or better type of W7: for example you can upgrade from Vista Home Premium to Windows 7 Ultimate but not from Vista Enterprise to Windows 7 Home Premium.
Before you upgrade, run the Upgrade Advisor and it will tell you exactly what's up.
BTW W7 is leaps and bounds better than Vista. It's a whole lot more polished. It's Vista done right.