Install Windows 7 on a Windows XP or newer operating system by using standard DVD or ISO media. As a best practice, backup your files before installing the new operating system.
Important: Follow the default installation instructions and do not delete or format partitions containing the operating system or user data.
Once you have completed installing Windows 7, click the Start button, click Computer, and then double-click Local Disk (C:). If the operating system is not installed on C:, click the drive letter that contains the Windows 7 OS. The C: directory contains any folders that were already there in the Windows XP operating system, in addition to a windows.old folder.
Windows.old contains the files and settings to migrate from Windows XP to the newly installed Windows 7. If you were previously joined to a domain, join the computer to the domain now, before running USMT commands in the following steps. Also, install any applications from the previous operating system, as USMT migrates application settings for these applications. For example, Microsoft Office Outlook® settings and PST files are automatically mapped for that program, and USMT migration eliminates the need to manually reconfigure Microsoft Office Outlook.
Insert your USB drive with USMT files. Copy the migrate.bat file to the desktop. Right-click the migrate.bat file and choose Run as Administrator. The batch file copies USMT 4.0 files from the USB drive to the Windows directory and then runs scanstate.exe and loadstate.exe commands to create the hard-link store and map the links into to the new locations.
Click Start, click Computer, double-click Local Disk (C:), and then double-click the Users folder. The Users folder contains all user files in corresponding file libraries. Open Internet Explorer® to see that application settings have been migrated.
USMT 4.0 hard-link migration is a new feature that you can use to perform an in-place migration much faster than by using traditional file copy mechanisms. Hard-link migration in USMT scans the computer for user files and settings and then creates a directory of hard links to those files. The hard links are remapped into the appropriate locations in the new operating system. The entire process typically takes a few minutes to run, does not duplicate files on the local disk, and can save several hours when upgrading to Windows 7. You can use USMT hard-link migration both online and offline. You can download the follwing guide that explains how to use USMT to migrate files offline from a default clean install by using Windows.old.