Across the Web, it's becoming common knowledge that it's technically possible to buy an upgrade edition of Windows 7 (which is considerably cheaper) and install a full version of the operating system from it. Microsoft has got wind of the hack, and has issued a stark warning that such practices are illegal.
Eric Ligman, Global Partner Experience Lead at Microsoft, has written a blog post that points out: "Technically possible does not always mean legal". He goes on to explain the differences between the EULA agreements of the two. The upgrade version very clearly states: "To use upgrade software, you must first be licensed for the software that is eligible for the upgrade".
He also clarifies the situation when it comes to OEM licenses - copies of Windows that came pre-installed on your machine. While boxed copies of Windows can be transferred between machines, OEM copies can't. That means that you can't pull out an ancient laptop with XP on and say "this is the one I'm upgrading" when you install Windows 7 on your netbook that shipped with Linux.
The beta or RC installs don't count either. Ligman says: "Those who don’t own a full previous version Windows license, and just downloaded the Windows 7 Beta, RC, or RTM code during the trial phases, the Windows 7 Beta, RC, and RTM trials are not qualifying licenses for the upgrade since they are just trial software, not fully licensed software".