Office 2007 works fine on XP.
Look here to see what comes in each package. If you use Access you will need at least Office Professional.
Buy the Upgrade version of the package you choose.
Once you have your upgrade disk, you can choose whether to upgrade all items (Word, Excel, Outlook etc.). You might want to search a bit more on Outlook 2007. I opted to stay with Outlook 2003, but upgrade Word and Excel.
If you have macros linked to Toolbar buttons you may have to do some customization of the Ribbon (the new Menu system), as there was no option to edit icon images and I had ten or so macros all with the same icon!
When saving Word and Excel files you will need to decide which format to use. A certain amount depends on who you send documents to and whether they have upgraded or have installed compatibility upgrades to open new formats.