Download and run the Windows 7 Upgrade advisor from Microsoft, and see what it tells you.

I have that computer and it has been upgraded to Windows 7. It works fine, however, I would install XP first and then do a clean install of Win 7 using the slightly cheaper upgrade disk. As long as the upgrade disk "sees" XP installed on the new disk, you will be able to do a custom install and format with the upgrade disk. This assumes that you are OK with what the Upgrade Advisor finds and you don't mind spending $110 on the old 8400. I don't see the worth in spending $200 for the full version on the old computer. You do not have to upgrade to Vista after installing XP before installing win7. If you don't want to upgrade to win 7, do the xp install and then do a clean install of vista. The clean install of vista (custom install and delete the xp partition--same as win 7)makes all the difference in performance and you'll save a bundle.

Skip installing XP, use upgrade media to do a clean install: How To

http://www.winsupersite.com/win7/clean_install_upgrade_media.asp

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Thank you for the information.  I will probably go ahead to install XP then upgrade to Win 7.

I would agree with you that I would install XP first with clean instal of Win 7 upgrade.  I am wondering you still have ATI Video card that it comes with 128 MB.  I spoke with Dell Tech Support and was told that Dimension 8400 can take either 512 MB or 1 GB for video card, only if I upgrade to Win 7.