My opinion?
Avoid upgrades. Even upgrading to XP sounds like a bad idea. And yes, I believe you'll have to reinstall all your programs, but the data may remain intact.
If you're determined to do this, a clean install on a reformatted hard drive would probably be the safest route.
HP says that the computer I'm using right now - which came with ME - can handle XP. Then it lists about 12 pages of drivers you have to download and install to make it work, and you still lose functionality of some of the PCs features. They conclude by saying that it it doesn't work, don't blame them.
I sincerely hope I'm wrong, 'cause I'd like to do exactly what you're asking about.