Quote:
Upgrading Windows 9x/Me to Windows XP is actually a bit of a misnomer. When you upgrade such a system, Microsoft actually examines your installation, moves your documents and personalized settings to a backup location, and then performs a clean install of XP . Then, it goes back and applies those personalized settings to the new OS and moves your documents into the correct location (My Documents, which is located in a different place in XP than it was in 9x/Me). This is why it requires so much free space for the upgrade, by the way.
lots of details on the 'upgrade' path