The problem is that the Windows 7 partition was formatted as a logical partition, which cannot be marked Active or become a System partition. This is how it should appear:
Open Partition Wizard and make a bootable CD from the top toolbar. Boot into PW, rightclick on WIndows 7 partition and Modify: Set Partition as Primary.
Now boot into Windows 7 OS* and run Windows 7 DVD from desktop to Repair Install
(*Should the Windows 7 OS not start up then boot into the Windows 7 DVD Repair console and run Startup Repair repeatedly until Windows 7 starts).
Any performance problems caused by converting from logical to primary will be overcome with the repair install which keeps programs, files and settings in place but reinstalls the OS and reconfigures the boot correctly.