Ok so I'm using Windows XP pro SP3, but whenever W7 comes out I might switch to that. The problem is, in doing so will I lose all my data such as games, music, files, documents, etc.? Is there a specific way to back these files up? 

The upgrade option is only for upgrading from Vista (and it only works for specific versions of Vista I believe). You'll have to do a fresh install if you have XP or dual boot (choosing to run either XP or Windows 7 when you start up the computer).

However, it would always be wise to back things up. You can back up game saves if you're worried about your progress. Backing up your files can be as simple as drag and drop. Stuff like USB flash drives, CD's or DVD's, and external hard drives are some storage methods to look into.

I see, thank you

The only thing you lose are OS settings - all documents , save games, pron whatever else you have on HDD can be backed up or put on other partisions of your HDD.

Save all your data onto an external hard drive, CD, USB, etc. and you won't lose your data.