>>> will the other machines still connect as now if main one is running win7.
Yes, because it is the Router that they're connecting to for their internet access, not the PC in which you are going to install Windows 7. Also, you will still be able to run "File & Printer Sharing" over the network with Windows 7 installed.
>>> do I install upgrade from XP running already onto this separate drive or boot from the Win7 CD.
Probably safer to boot from the Windows 7 DVD, although it shouldn't make a difference.