The iPhone 3GS cannot upgrade to iOS 7.
According to MacTracker - the iPhone 3GS will support iOS 6.1.3 - that is as far as it will update.
Verify that you have the latest version of iTunes installed on your computer. That may be why you aren't seeing an update beyond 4.
OR, if your phone is a 3G, (not a 3GS), 4.2.1 IS the highest version of iOS that you can run.
HTH
Message was edited by: ssschmidt