Imo, Home Premium is just as good. I've been running a less legal Ultimate version and now I'm running a legal Home Premium, and I haven't been bummed about any annoying limitations. Only if you're, like, really interested in that Win XP Mode. I can live without though. All of the programs I run can run on Windows 7. 7-Zip, CCCP, meGUI, avisynth, Open Office, µTorrent, Steam, VLC, Suprip, DVD Decrypter, Firefox, mIRC, mp3tag, CoreAVC and several others...
I think that's a good idea about backupping your stuff. Although an upgrade could work, a fresh install is the best and would create less potential problems. I've never had ANY problems with playing anime nor games. Though old games where no support exist might be an issue if you plan to be able to play several of those.
The games I play are from Steam so compatibility for those games needed to be out fast.
Have fun with Windows 7, it's a great OS.