I think the cheap midi-USB interface should do the job, the problem with onboard soundcards though is that they are not ideal for recording audio. I tend to have latency and dropouts with the onboard soundcard on my laptop making it useless to me for recording. Using my external soundcard brings much better results.
But to answer your question, Cakewalk should work on your Windows 7, I know a guy who recently installed Cakewalk 2.0 or something on his Vista machine and it worked. The midi-USB adapters are pretty cheap at guitar center. I cant promise anything as I do not own Home Studio 7, I can only pass on what I have been told by others. Good luck.