As the upgrade just overwrites your XP partition your recovery partition should actually be fine - as long as you have created your recovery media. Also, in my PERSONAL opinion... you now own Vista or XP as of right from the purchase of your PC (you own a certificate of authenticity etc) so ANY way you install these products is fine by me!
And you would never be brought up on it by Microsoft.
With regards to doing the upgrade or not... Vista = XP but with greater stuff!
And as HP is an official partner of Vista, you should have no issues with drivers or compatability
crabby