I'd recommend taking the wood off if you can and re-siding around the windows.
The windows that you have in right now are tied in with flashing and other means to your house's envelope. It may not look like it right off, but the eaves siding and flashing are all designed so that water will run off and around the window... and if it doesn't for some reason, there's ways for it to drain without draining into the house or sitting on the wood siding. If you replace the windows with slide-in replacements, you sacrifice that integration and drainage. It's mostly OK, especially in our climate, as long as your siding isn't rotten and you keep up with scraping and painting it every few years and you remember to re-caulk around the windows if the caulk ever looks like it's hinting of cracking, which is pretty common in our high U/V environment. And you have to watch to make sure the wood around those windows doesn't get spongey behind the exterior trim. And in the case of a brick-faced house, it's the only thing you can do... just hope the masonry doesn't leak.
The right way to do it is to get windows with the nail flanges and install them properly. "Properly" means taking off the siding around the windows, removing the old windows, removing the old window trim, putting the new windows in, and using rubberized sticky flashing (aka peel and stick flashing -- but make sure you use Butyl and not Asphalt 'cuz the asphalt will eat the vinyl windows) to make sure that the windows are sealed to the house itself, then replacing the siding and trim outside and the trim inside.
I don't blame you if you want to do slide-ins, because it's a heck of a lot less work, but you should know ahead of time that it's not the "right" way to do it and that you really need to maintain your siding and the seal around the windows. Thousands have been installed without any problem. But ask me about the few that have been problematic, and let me tell you an expensive tale of woe and rotten wood...
