I don't have photoshop 7 (send me send me!!)
but, why not rasterize the image in Photoshop 7 if it is pasted as vector? There should be a rasterize command. Or flatten the image and save as transparent PNG (on a transparent background), then drag it back into a new document when done with that. Must be a raster then.
Where'd you get Photoshop 7? Help me out and I'll help you... I'm a photoshop and Illustrator expert. (As well as Flash and actionscript expert)
Thanks,
-Carlos-