You can still do a clean install with the Vista disc. You simply do not delete the "recovery partition" during the install. One of your purposes of doing this, or one of the things you wanted to accomplish was to get rid of, or change the size of the two different partitions they created. You can do that during the initial stages of the Vista setup. However, you must not touch the recovery partition. If you don't, it will continue to function as it is supposed to if you want to do a factory restore.
The words OEM and Upgrade don't go together.
You can buy a full retail version (the most expensive and ridiculously over priced anyway you look at it), you can buy an upgrade retail version (still expensive but much cheaper) but requires a previous operating system or disc as suggested, and then finally the OEM version (probably the cheapest) which is a full version, does not require a previous operating system but is locked to the computer you initially install it on.
The benefit of buying a retail version is that you can remove it from one computer and legally put it on a different computer and activate it. With OEM you are legally supposed to lock it to one machine, it stays with that machines, no matter what.
My choice, if I were you, would be to buy an OEM version. But, if you want to save money and have to buy retail, use the upgrade as long as you have a qualifying operating system to upgrade from. Keep in mind that OEM versions do come with certain restrictions such as this NewEgg disclaimer:
Disclaimer: Use of this OEM System Builder Channel software is subject to the terms of the Microsoft OEM System Builder License. This software is intended for pre-installation on a new personal computer for resale. This OEM System Builder Channel software requires the assembler to provide end user support for the Windows
I don't have a clue about Windows 7 licensing and anything I said here may have changed, but it is probably about the same. My only concern would be its requirements for validating a previous operating system during an upgrade. I'm not sure if it has been verified that the Windows 7 install will accept just a disc for verification? If I remember properly, I ran into this situation one time on Vista, and unlike XP, I
had to fully install XP and then I could upgrade to Vista. During the upgrade I could destroy the previous XP installation and install "fresh," but it still had to be fully installed because
the upgrade had to be started from the working operating system. I would find it unlikely this has changed in Windows 7. But, this is only one experience, I may be wrong.