You are confusing Upgrading with a Clean install from an Upgrade
version. Please read the following quote from:
http://www.winsupersite.com/reviews/winvista_03.asp
Understanding your installation choices
How you acquire Windows Vista play a large part in any decision about
how you will actually install the operating system. At a high level, you
have the following basic choices:
Clean install. With this method, you boot the PC from the Windows Vista
install DVD, run interactive Setup, format the PC's hard drive, and
install Windows Vista as the only OS. This is probably the rarest way to
get Vista on a PC. You can use a "Full" or "Upgrade" retail version of
Windows Vista to perform a clean install, though you will need
"qualifying media"--typically a Windows XP or 2000 CD that proves you
qualify for the Upgrade version.
Upgrade. Here, you insert the install DVD from a "Full" or "Upgrade"
retail version of Windows Vista while running Windows XP and perform
what's called an in-place upgrade. The Setup process is similar to that
of a clean install, but most of your existing applications and all of
your data files will be available and working properly once the upgrade
is complete. Unfortunately, there are a number of qualifications to the
upgrade process in Windows Vista. First, you can only upgrade certain
versions of Windows XP to certain versions of Windows Vista. Here's a
chart that explains which XP versions can be upgraded: