Hmmmm. Haven't done much troubleshooting on iPhone connections recently ...
But it occurs to me (on a basic-principles-troubleshooting sort of level) that if the iTunes install was an agony going in, then your current version of Apple Mobile Device Support might have ended up being damaged. If so, a repair install of Apple Mobile Device Support might be of some help.
I don't have a Windows 7 box to refer to ... Does it have an "Uninstall a Program" control panel, like Vista?
If so, try heading in there, selecting Apple Mobile Device Support, and doing a "repair install". If that goes through okay, try rebooting the PC and launching iTunes again. Does the iPhone have any better luck connecting now?