Apparently it will not be possible to upgrade Windows 7 RC from Windows 7 Beta out of the box. However there is a way to make this work and the instructions have been posted on the Engineering Windows 7 blog, Microsoft are saying however that this is not a supported method and that between Beta to RC and from RC to RTM you should do a clean install for the best experience.
In any case here is my slightly modified version as to how to do the upgrade via USB memory stick.
- Download the ISO as you did previously and burn the ISO to a DVD.
- Follow this article (http://dellmini9.blogspot.com/2008_09_01_archive.html) and copy the whole image to a storage a bootable flash drive.
- Browse to the sources directory on the flash drive.
- Open the file cversion.ini in a text editor like Notepad.
- Modify the MinClient build number to a value lower than the down-level build. For example, change 7100 to 7000 (pictured below).
- Save the file in place with the same name.
- Run setup like you would normally from this modified copy of the image and the version check will be bypassed.