I have done clean upgrade installs as follows:
1. Boot from the Windows 7 upgrade DVD with target hard disk containing previous version of Windows.
2. Follow prompts and choose custom install. Setup will inspect your hard disk and when it finds the older version of Windows, it will make a note that you are eligible for the upgrade.
3. Delete all partitions and install to the free space. Installing to the free space allows setup to create a recovery partition and leaves no old files hanging around.
4. Let setup finish install.
I have upgraded a desktop from WinXP MCE to Win7 Home Premium, and a laptop from Vista Home Basic to Win7 Home Premium using this procedure. The upgrades activated without a hitch.