If you upgrade Windows XP to Windows 7 you will keep your items. If you like pick the other option (CPU Wipe upgrade) you will lose your shit.
My answers for your questions.
A. If you like the effects Windows 7 provides and some errors then yes. But I find Windows XP more suitable.
B. When you pick the Upgrade button during your process you will not lose your files.
C. 32-bit and 64-bit Windows: frequently asked questions
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