This is from maximumpc site.
The full upgrade process still hasn’t been finalized, but here is what we do know. Windows XP upgrade editions were pretty painless. The installer would prompt you to insert a copy of a previous OS for disk verification, and that was pretty much it. Assuming you passed this stage, XP would then prompt you to drop the original install disk back in the tray, and it would push ahead with a clean install.
This approach changed with Windows Vista, and not necessarily for the better. If you followed the official Microsoft approach, you were stuck installing Windows XP each time you wanted to format your PC. Once it verified that a qualifying OS was installed, only then could then upgrade to Vista. This hokey double install process was a terrible waste of time, and seemed like a pointless exercise.
A known workaround now exists that will allow you to bypass this step, and it’s easier than you might think. Simply insert your upgrade DVD, boot into the installer, and when prompted to enter your product key, simply refuse to do so. After you click through all the warnings and pick the version you purchased, it would push ahead with the install. Your product key could then be easily entered later on once you were booted into the OS, and you could then activate using the normal process.