Here is what I would do and have done for many of the XAMPP versions so I have many working version for troubleshooting on the forums - the instructions are long so you may like to copy and paste to a text file on your desktop for ease of reference.
Drag your current xampp folder holding down the Ctrl key so you end up with Copy of xampp.
Now make sure all xampp components are stopped and all components running as a service are uninstalled - in other words make sure that no xampp process are running and all services are uninstalled by running the apache_uninstallservices.bat file and the mysql_uninstallservice.bat file in their respective folders in the current xampp 1.4.16 version folder.
When you are sure that all is clear then delete the xampp folder or at least rename it to xampp1416, remember we have a working copy now of this xampp folder.
Next download the EXE (7zip) version of 1.7.0 and extract the files to the default C:\ (or root of the drive of your choice) the files will be extracted to C:\xampp with all the files in their proper place.
Next run the setup_xampp.bat file in the xampp folder which will set all the paths to the right locations, this is a must do procedure.
Now open the xampp-control.exe file and start Apache and Mysql and nothing else and don't click on any of the Admin buttons.
Both Apache and MySQL should show running in green.
Now go to http://localhost
and select your language and at the Welcome page run all the demos especially the CD Collection demo as it will confirm that MySQL is working.
If all is fine with XAMPP and there should be no reason why not using this method then we are ready to copy over your web sites.
Remember that we have a copy of xampp that is a fully working 1.4.16 version and all it takes to get it back is a rename to xampp but first rename the other xampp to say xampp170.
I hope we don't need to do that.
We are going to copy over one site at a time.
Now copy over the website in it's folder from the htdocs folder in the Copy of XAMPP to your htdocs folder in the new 1.7.0 version xampp folder.
Next go to the mysql\data\ folder and look for a folder that resembles the name of the database corresponding to the Joomla in the folder you just copied over.
Now copy this Joomla database folder to the mysql\data folder in the new 1.7.0 xampp\mysql\data folder.
Next do the same for the Joomla that sits in the htdocs folder in the Copy of xampp to the htdocs folder of the 1.7.0 xampp htdocs folder.
Do the same for the database as you did for your first site.
When you are happy that your web sites have been copied correctly and they are in identical locations in the Copy of xampp and the new xampp folder then we can go to the next stage which is making the databases compatible with the new version of MySQL in 1.7.0.
Make sure that MySQL is still running for this next stage.
You will have to open a command prompt in the xampp\mysql\bin folder and here is how.
Go to start
on your Task Bar.
Click on Run...
At the prompt type cd C:\xampp\mysql\bin
At the next prompt type exactly as shownmysql_upgrade.exe --force -u root -p -t "%TEMP%"
(Because as yet you have not set a root password just hit return on your keyboard for the password question
Next restart MySQL (Stop then Start MySQL in the XCP
Now your databases should be compatible with this new MySQL version.
Next test your web sites and remember to set a root password for MySQL/phpMyAdmin from the http://localhost/security
You can delete the xampp1416 folder but I would keep the Copy of xampp folder for the time being till you are confident all is working as it should.
Remember that you always have a working copy of your web sites in the Copy of xampp folder should things go belly up and all your files and sites will be intact with only a renaming of the folder to get your sites back and working again.
I hope these instructions flow for you and that I have not missed anything.
Fingers crossed that all goes well as it will save you heaps of time and hassles of upgrading to each version if that was even possible.
Let me know how it goes or if there is anything that you don't understand.