The Upgrade for Windows Vista is preferable to buying the full version due to its lower pricing but upgrading means having already bought a previous version of the Windows OS that's compatible with the upgrade (e.g. to upgrade to Windows Vista Ultimate you'd need either XP, Tablet PC or Media Center versions or even Windows Vista Basic/Home Premium or Business whereas Windows XP Professional can't be upgraded to the Home Premium version of Vista).
The setup routine is more convenient and faster than that found when installing XP - but upgrading increases the time needed for the install of the OS comparable to a clean install.
You should backup your system before this wonderful journey just in case

and also defrag the HDD and remove the antivirus to avoid any incompatibilities.
Upgrading needs to be started from within Windows (XP) and not at the boot-ukey, the latter solution being available for the clean install as well as the former.
And last but not least

the clean install (as well as the upgrade) doesn't require the XP key expressly. Instead you'll need to enter Vista license key.
All the best!