We’ve just updated our Knowledgebase article: Upgrading a VMware Fusion virtual machine from Windows XP to Windows 7 to include a video walk-thru of the process to upgrade your Windows XP virtual machine to Windows 7 in VMware Fusion.
The video provides any information that you need to be aware before performing the upgrade and walks you through each step, including the installation of VMware Tools.
Note: Windows 7 is supported in Fusion 3 and higher. For more information about upgrading to Fusion 3, see the VMware Fusion Product Page.
