Almost exactly two years ago, I wrote about “Microsoft’s licensing mess.” Judging by my mailbag, nothing has changed in the meantime. Microsoft has done an exceptional job of designing Windows 7, but a terrible job of communicating how it will be sold. As Microsoft dribbles out details of the Windows 7 release schedule and product lineup, including pricing and upgrade offers, I’ve been deluged with questions from readers about whether they qualify for a Windows 7 upgrade and, if so, what’s the simplest, most cost-effective way to acquire it.

Before I dive into the Q&A section, it’s worth taking a second to clear up the source of much of the confusion I’m encountering. In the often bewildering world of Windows licensing, the word upgrade has two separate and distinct meanings. The first refers to the license that you purchase, which in turn allows you to run Windows on a specific PC. The second refers to a mode of setup, where you keep installed programs and personal data files while replacing the underlying operating system.

Confused? Let’s see if I can untangle things.

I’m currently running the Windows 7 Ultimate Release Candidate. What are my upgrade options?

From a licensing point of view, your installed copy of Windows is irrelevant. What matters is the sticker on the side of the PC. If you have a Certificate of Authenticity for Windows XP or Windows Vista on that computer (or a certificate of authenticity from a retail copy of Windows that has been assigned to that machine), you qualify for an upgrade license to any edition of Windows 7.

As for the installation itself, you are subject to the following technical limitations:

• An upgrade installation is blocked on the RC build (7100). To perform an in-place upgrade, you must modify an installation file using the technique described here.
• Because you are running Ultimate edition, your only option for an in-place upgrade is to install Windows 7 Ultimate edition.
• You cannot change from Windows 7 x86 (32-bit) to x64 (64-bit) or vice versa. If you’ve been testing the 32-bit version and you want to go 64-bit, you’ll need to do a custom install.

I am currently running a licensed copy of Windows Vista Ultimate. Do I have to upgrade to Windows 7 Ultimate?

Again, there’s a two-part answer here. From a licensing point of view, you qualify for an upgrade license to any edition of Windows 7. As far as installing the upgrade, that’s another story. You can’t downgrade as part of an installation, so if you decide to move from Vista Ultimate to Windows 7 Home Premium or Professional, you’ll need to do a custom installation. You can upgrade from any lower version to the same edition or a higher one, with some exceptions. So if you’re  running Vista Home Premium, you can perform an upgrade to Windows 7 Home Premium or Ultimate. [Update: Microsoft has published several documents purporting to describe how upgrades will work and has retracted at least one of them. Until the final code is released, it's impossible to confirm which versions are correct.]

Is it fair that I have to pay the same price to upgrade from Windows Vista Ultimate as someone running Windows XP Home or Vista Home Basic?

No, it’s not fair. But the alternative would be ludicrously complicated.

What’s the difference between an OEM license, an upgrade license, a full license, and a volume license?

Can I just explain the infield fly rule? That would be easier. Seriously.

No? OK, fine:

• An OEM Windows license is one that’s included with a new computer. The top 20 manufacturers get insanely great discounts on Windows compared to retail costs. This license is locked to the computer on which it’s installed.
• A System Builder OEM license has a much lower discount but is still a pretty good deal with a new PC from a small system builder.
• An upgrade license is a discounted retail copy of Windows that can only be installed on a system that already has an OEM or full license.
• A full license is sold at retail and is intended for use on a computer that was not sold with Windows originally. The price is horrendously high.
• Volume licenses are sold in bulk to corporate customers, in quantities of five or more at a time. A volume license is available as an upgrade only.

You keep mentioning a “custom installation.” Is that the same as a clean install?

Not exactly. A custom installation allows you to install Windows on a freshly formatted partition, which is the definition of a clean install. But you can also use a custom installation to set up Windows on a drive that already has Windows installed on it, without wiping out the previous installation. Your old system and data files go in a folder called Windows.old.

I’m running the Windows 7 RC. But the pre-order upgrade offer from Microsoft says I have to be running a genuine copy of Windows XP or Windows Vista. So do I have to pay full price and buy a full license?

No. You qualify for upgrade pricing (assuming that the system originally included a licensed copy of Windows XP or Vista and has a Certificate of Authenticity) but are free to do a custom installation.

I am using Windows Vista Home Basic now. How can I upgrade to Windows 7 Home Basic?

You can’t. At least, not if you live in the United States, Western Europe, Japan, Australia, New Zealand, or the rest of the “developed world.” Beginning with Windows 7, Home Basic is available only in so-called emerging markets.

How do I do a clean install without wiping out all my data?

No one knows yet. Microsoft has apparently changed the upgrade rules for Windows 7. When I get a chance to test the upgrade media, you’ll be the first to know.

If you’re confused about the differences between Windows 7 editions, be sure to check out From Starter to Ultimate: What’s really in each Windows 7 Edition? and Do you need more than Windows 7 Home Premium?

Ed Bott is an award-winning technology writer with more than two decades’ experience writing for mainstream media outlets and online publications. See his full profile and disclosure of his industry affiliations.

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That didn’t take long. It has only been a week since the official Windows 7 RTM announcement by Microsoft, but crackers have already managed to activate and validate the tricked-out Ultimate version of the OS. The hack is nothing new, as it borrows the same techniques used to bypass activation and verification of previous Vista editions.

According to Softpedia, crackers somehow obtained a copy of an OEM Windows 7 Ultimate disc from Lenovo. From there, they were able to extract two critical bits of information: Windows 7’s OEM-SLP (system-locked pre-installation) product key and the OEM certificate for Windows 7 Ultimate.

But before these can be of any value, one first has to modify a system’s BIOS to fool the operating system into believing that the PC is an authentic OEM machine. This is done by tweaking the values found in the Software Licensing Description Table (SLIC) that is stored in the system’s memory during boot-up.

Once a person has disguised a system as a legitimate OEM machine, the OEM-SLP and OEM certificate allow for permanent, validated activation of the operating system. To Microsoft, the PC is no different from a functional OEM machine–and the “OEM machine,” in turn, has no need to call back to Microsoft’s activation servers for any kind of additional verification. That would defeat the convenient basis behind the creation of SLIC-based OEM activations in the first place.

Just because the OEM disc and keys came from Lenovo doesn’t mean that the crack is exclusive to that brand. According to Softpedia, the crack has proven successful on Dell, HP, and MSI machines as well.

Partners and ISVs can now work with the final engineering version of the OS as they build out their own solutions heading toward the general availability launch of the products this fall.

Microsoft’s forthcoming Windows 7 operating system was released to manufacturing on Wednesday, a milestone that signals the formal completion of the engineering development phase.

Partners and ISVs can work with the final version, with locked-in code and features, as they build out their own solutions heading toward the general availability launch of the products this fall, according to Microsoft.

“Not only is RTM an important milestone for us – it’s also an important milestone for our partners,” wrote one member of the engineering team on the Windows Blog. “Today’s release is the result of hard work and collaboration with our partners in the industry to make Windows 7 a success. We delivered Windows 7 with a predictable feature set on a predictable timetable that allowed OEMs to focus on value and differentiation for their customers.”

Windows 7 is due out in general release on Oct. 22 and has been so far reviewed favorably by partners, who are smarting from the abject failure of Microsoft’s current client OS, Windows Vista, to take any respectable hold in the marketplace. PC manufacturers and hardware resellers are also placing bets that Windows 7 uptick will drive new sales of systems.

Microsoft said 16,000 partners, including ISVs and OEMs, have been participating in the Windows 7 Readiness program, already building out solutions. Mike Nash, corporate vice president of Windows Product Management, told Channel Insider that solution providers and VARs will find as much opportunity in Windows 7 as their ISV and OEM counterparts.

“What can VARs do? They can help customers running Windows XP to make the move to Windows 7,” he said. “Even with the great work of XP SP2, the gap between it and Windows 7 is significant for the browser, the core OS and other features we’ve enhanced. That’s an opportunity.”

While partners are optimistic about Windows 7’s potential, many still see their fortunes tied to customers finally getting around to the PC upgrade process.

“Most of our customers don’t ever upgrade to a new OS on its own; they do so when buy new PCs,” said Brian Jaenisch, Microsoft partner business development manager at Marco, in St. Cloud, Minn. “So today, that amounts to a lot of platform work for us around Windows 7.”

IDC is also predicting that Windows 7 adoption will take place quickly, with 177 million units shipped by the end of next year.