Will I have to format my hard dive to update my XP to Vista because I have many files that I want to keep stored on my PC to use with Vista.

are you intending to upgrade to vista now? at the moment the full version is not around only beta versions.

there may be upgrade versions of vista around come Jan 2007

As Brain_Damage says, you can only install a beta at the moment, which means that it is an unsupported pre-release version for testing only. If it is a beta version that you want to install, then the very nature of that kind of software (i.e. Microsoft haven't finished testing it) means that you should be taking a full backup of EVERYTHING that you don't want to lose before installing Vista anyway.

Of course, even if it was the final public release version, I would want to back up all of my important files onto CD, DVD or USB drive before installing ANY new version of Windows - that's a pretty major change to your PC that you are proposing and there are plenty of opportunities for it to go wrong!