|That is unfortunate.|
Normally both MFTs do not go bad and test disk can use the good one to restore to the bad and affect a repair.
However, in your case both MFTs are bad. Thus there is no way to recontruct your files and directories.
MFTs contain the glue that binds the hard drive sectors into files and directories under the control of the OS.
Conceptually each file has a header track on the hard drive with a marker pointing to the next track, the next track has a header pointing back to the header followed by part data of the file and then a tail which points to the next track and so on till the final track which has an end of file marker.
The only way forward now is to try and recover your data from the faulty hard drive to an empty functioning hard drive with enough free space as the amount of data lost.
There are utilities which scan the hard drive disk tracks and sectors as explained (conceptually) above and recreate your files and directories using their file fragments.
So first if you want to recover the data then do not format your hard drive and do not write anything to it until you have completed the recovery exercise.
RECUVA from piriform.com is free and capable of recovering data from your hard drive.
A good one I have used (but is NOT free) is GetDataBack from Runtime.
There are a few more listed here
To answer your question:
I do not believe that you will be able to do an upgarde to Windows 7 using your upgrade CD due to the fact that it will see the hard drive as having a fault and will not progress any further.
☺ When everything else fails, read the instructions.