OEM is meant for a cleam install. If i remember correctly the upgrade option is removed...
Yes you will always want to instal a new OS onto a clean hard drive. This doesnt mean you need a completely formatted drive though, just a partition. You can partition your drive up and stick all your data on one drive, format the other then install Vista on that. PErsonally over got 6 partitions accross 3 physical drives. One for Vista, one for XP, one with all my documents and dowloads and data on it, one with all my games installed on it, a backup drive and a media drive. It means I can just wipe the Vista or XP drive, clean install the OS, and not have to worry about loosing all my data.