OK, you should be able to install Office 2007 alongside Office 2003 (except for Outlook - only one version can exist at a time), or as a replacement.
I take it you are using the Office 2007 product key, and not the Office 2003 one ... What error message, if any does the installer report?
Just in case it's a problem that relates to the Windows XP installation, have a read of this:
http://support.microsoft.com/kb/916247.