The upgrade to IE 7...is one that is alleged to make your system more secure, since IE is a basic part of XP.
It doesn't matter whether you think you use the IE 7 or not...it's a part of XP that needs patching, for security purposes.
I don't believe you can remove/separate IE from any version of XP, so it's a moot point as to whether you think you need it or not.
Old but related: http://reviews.cnet.com/4520-10166_7-6219945-1.html
And...you don't have to use AOL for browser or internet access, it's just more convenient for AOL users to do so.