You can try using step 3 for Vista Ultimate to Home Premium, but we cannot guarantee that it will work, and we take no responsibility for the consequences. :P
It might be usable, but I can't guarantee you anything. I'd back up your important data before you try. Though it's best just to do a clean install, as upgrades from one OS to another are never all that great.
1. Yes, it will work.
2. You can do a clean install on your XP partition, but it's advisable to format the RC partition if it's being problematic. You'll get two Windows 7 entries at boot if you don't.
3. You won't have any activation problems.
Update: Guys it worked well, aside from the fact I had to do the hack to turn the RC ultimate into Professional so that the retail installer would upgrade it.
I have two other problems that I'll have to start in another thread.
I loaded WINDOWS RC 7100 on a blank drive and been using for months I just got the WIN7 Upgrade do I have to use the hack or just upgrade from the dvd without the hack?
So if I use the hack to WIN 7 Upgrade install on my RC 7100 that I installed on a formatted drive will it wipe out all my setting and programs or will they all be intact after the install?
Followed the procedure, but the screen still reads Evaluation Copy, build 7100. Did I do something wrong? Client was 7077, changed to 7000.