First, you can reinstall your Windows OS as many times as you want.
There isnt a limit. Now, if you are registering each time with MS, who
knows. I dont register any more. Any updates I need I just go get.

So as I understand it, you want to upgrade from 7.04 to 7.10. So take it
step by step. Do that upgrade first. Then see if VM has any problems. If
it does you can try to update just the VM. If that doesnt work - then
reinstall Windows.