It sounds like you returned the computer to it's factory state using the original image found on a hidden partition on the computer. It would not have been upgraded to Win 7.. it's placed there at the factory and can't be altered.

I don't know if the one time upgrade is still applicable since it's years old at this point. You could try and see what happens but I suspect you'll need to buy a copy of Windows 7 and start from scratch once more.

Not sure why it had XP on it when you bought it.. was it used? or perhaps the retail vendor did the XP install themselves?