Windows 7 in-place upgrade should keep all existing user accounts and all compatible applications.
Office 2007, iTunes, etc should still be there along with both user accounts after the upgrade.
Note I've used the word SHOULD. Upgrades usually run smoothly, but obviously there's a lot going on and nasty things can happen.
When I did it it took a couple of hours so I just left the system running and when I came back all was well.
If you do want to consolidate user accounts, I think the best bet is to do the upgrade and then create a new account. Move all relevant files from the old accounts to the new one, then use the new one and forget about the old ones, possibly delete the old ones after a few months (that way if you forget to copy anything over you can go back and get it).