Yes. Although you can get the upgrade version, and that won't. But it's good to format your system every year or two anyway. So back up all your stuff, and then install windows 7.
You can tell it to keep all your stuff and it'll move it to windows.old in your C:/ drive. But I formatted and I'm pretty much loving it.
it keeps it all on the partition that has the OS already installed on it, and just puts everything in a folder on your desktop called windows.old, as teddi said
If you upgrade to the same version ex. 32 bit 64-bit and DONT CHANGE your version you can upgrade and it wont erase anything