Thanks to everybody for the replies!
Plenty of good guidance here for me.
I'd forgotten (briefly) even the existence of Vista, which is why I was thinking of an XP to 7 upgrade. Given the circumstances I'll opt for a clean install of W7.
I use mainly Macrium Reflect Pro for backups, so that would be my first step (and second

)
I'll trawl around the netbook for any keys I can find. I'll probably recommend some good freeware alternatives to anything I can't fix.
Mainly, this machine will be for internet browsing (NOT with IE), email, data, some utils to make life more pleasant/safe, and a few basic games. That's probably not too challenging, even for a low-resource machine.
The reason for changing is that XP is moving out of support. If I could keep this thing off of the internet it would be XP for ever.
As always, DC is a great starting point to gather informed opinion