Can I still use the v7 to upgrade to CS3 even if the v7 doesn't work?
#1
Yes. You only need the old serial number from Photoshop 7 and the new one from CS3. [Adobe upgrades are always FULL installers that prompt you for the old serial number if they don't find that application installed.]
But HURRY UP! When CS4 is formally announced on Tuesday, Photoshop 7 ceases to qualify for ANY upgrades.
#2