First of all, is all your stuff backed up? I'd hate for you to lose everything if it is a dying HDD. You can get 1TB drives for about $60, or less space for less... I'd really recommend that if you need to back up or if your drive is dying.
I'm pretty sure you'll have to reinstall your programs. If you upgrade from Vista to 7 using the "upgrade" option, I don't think any of your files will be touched, but I'd make sure they were backed up first. And yeah, I'd go with 7. I've never tried Vista, to be fair, but I don't really care to.
Hope that helps.

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