Does the license really need the installation itself to be an upgrade? That would be silly, as everyone who has tried knows that a Windows installation upgraded from a previous version is never as snappy as a clean installation. And in that case, reinstalling the OS would require user to install the old Windows first. That wouldn't much make sense, would it?
You can do a fresh install, but only if there's already a licensed version of windows on the hard drive. If you previously replaced the OS, then the upgrade won't let you register until you run a command from the shell and say it's ok.
Oh. I thought we were talking about win7 now. It wasn't hard to find when searching for obvious keywords like upgrade verification new install windows whatever.