So if I understand you right, not all of the 7"er's screen is going to be visible, so you want to scale it down to fit in the visible area?
I don't know if it can be easily done, but scaling is a bad idea. Unlike a CRT, LCDs have discreet pixels, and scaling invariably makes it look like crap. I think some software that makes windows think it has a smaller display while still outputing VGA would be ideal, but I'm not sure anything like that exists. Your best bet may be to make a frontend skin that works to your space limitations.
Or, get a 6.5" screen. You say you can't find one with a touchscreen, but touchscreens can be added to any screen. It can be done (though it might get pricey).