You should redo your installation and do a fresh install. It looks like you did a parallel installation alongside the old install. If you need any data, back it up before doing the fresh install. In doing the fresh install you need to delete the existing partitions and then recreate them and then format and install.
This was a fresh install, over the old one. There's no such thing as
a "parallel" install.
Vista creates that "backup" folder so you can save your documents.
To the OP:
Get everything you need out of that folder, then boot into Safe Mode.
You should have no problem deleting the Windows.Old folder after that.