Greg,
In order to upgrade you have to have something to upgrade from. A bogus installation of XP does not count as that something.
To qualify for a Vista upgrade license, you'll need genuine XP or W2K.
Or you can use a full retail or systembuilder/OEM license for Vista. Note that systembuilder/OEM licenses for Vista are permanently associated with the computer onto which they are first installed and cannot be moved to any other computer.