Well I finally have it working, and for posperity I'm going to post the steps here, because thread is one of the most popular hits when you type "XBCD Windows 7" on google, and given the views I suspect a few ppl are going through what I went though, so here is how I did it:
Install Driver Signature Enforcement Overrider 1.3b,
choose "Test Mode" and reboot.
Install the 0.2.6 drivers from XBCD - XBox Controller Driver Forum -> Latest 0.2.6 Version
Run the driver installer as Administrator, installing only drivers. Dont bother installing the certificate. Reboot.
Run DSEO again, hit Sign System File, then type "C:\windows\system32\drivers\xbcd.sys". Reboot again.
Open Device Manager, look for "Microsoft Common Controller For Windows Class", and goto properties for "Xbox 360 Controller".
Goto Driver tab, and click "Update Driver". Click on "Browse my Computer for Driver software".
Click on "Let me Choose" and you should see XBCD driver. Click it, hit ok and that should do the trick.
Open the XBCD Setup Util, and you should see the gamepad listed. The buttons go crazy, but this is a fault of the setup util, always has been. 0.2.6 even has built in profiles for different mappings, the one I use is triggers on seperate axis. I tested this out on rFactor and it works great, rumble support and all.
Hopes this helps anyone else having this problem!