Trying to get the USB1 cradle working on Windows 7, is going to be a bit of a challenge. Some people have reported success using XP mode, but the speed of the cradle really is appalling!
I would recommend you find yourself a generic USB 2.0 caddy, in the UK you can get them for just a few GBP (mine was about £3). It's very easy to open up the DMS and swap the disk out, you just need to be careful of the pins on the drive itself when removing/re-attaching the Keg/Cradle interface board.
You should then find no problems using the disk under Windows 7, and if PhatNoise software doesn't recognise it as a DMS, PhatHack Media Manager will.