Windows XP is not directly upgradeable to Windows 7, meaning all other non-OS applications will need to be installed just as if this was a completely new install on a new hard drive, so in a Virtual Machine it's a bit senseless to preform an upgrade from XP to 7! 
Just create a new Windows 7 Virtual Machine and install it directly.
When installing Windows 7 without using the Product Key one needs to select the proper version one has the key for. In other words when not using the Product Key then in the ensuing dialog boxes one has the opportunity to select between various version and one then needs to select the proper version, the correct one for the particular Product Key one has.
You'll have to start over and be more careful as you walk through the dialog boxes.
Message was edited by: WoodyZ - I'm talking about the actual Windows Install Dialog Boxes, not the Virtual Machine Wizard.
pattyg98 wrote: I am not sure, but I think I chose the "installer disk image file."
You cannot use Easy Install when installing from an upgrade disc, select Create a custom virtual machine and then make sure when you install you select the proper version you have the key for as you walk though the various dialog boxes during the actual install of Windows. (I'm not referring to when walking through the New Virtual Machine Assistant however of course select the correct one there as well. )