Here is a link to what I can find about your system. Is the info in the link correct as to being the same system that you own?
http://www.dbusguy.com/computer/laptop.htmIf the systems match then you are getting a false report from the Windows 7 Update Advisor.
What really concerns me about this system is the video card only having 128 meg dedicated and 191 meg shared. Still, if the system runs Vista decently, I would think that it would do well with Windows 7. The real issue is if you can find Windows 7 drivers for the thing. Often Vista drivers will work with Win 7 but that is not 100%. While Win 7 is pretty good at installing its own drivers from Microsoft there is no guarantee that drivers will be found for all the hardware.
The reason that you would need to do a custom install (or clean install) is probably due to a version mix-match. From the above link I believe that your Vista version is probably Home Premium. I believe that you could do an upgrade install to Win 7 but only if you used the same version of Win 7 as Vista. It has been so long since I've used Vista that I'm not sure on the last. Or, as Steve said while I was typing,
it is the difference between your having a 32 bit Vista version and going to a 64 bit Win 7.