Ok I am in Pal land and always get slightly confused with NTSC frame sizes however I believe that the setting should be
Frame Size 720x486
Pixel Aspect ratio NTSC CCIR 601 720x480
Field dominance Upper
Uncheck the anamorphic box
You should not use square pixels for SD.
Yes beta SP is upper field dominant.
I would transcode the 7D footage to ProRes using the log and transfer tool. (or whatever tool you prefer) Dont edit the H264 files you will end up with problems.
Sounds like you have already done this though.
You did the right thing to say no to the sequence settings change.
You will have to render as FCP has to resize the HD footage to SD however it should playback in realtime (green bar on timeline) without rendering but will look poor quality until it is rendered.
The ProRes SD footage you have should just drop straight into the timeline without needing to render or change anything.
You could always start with one of these clips and say YES when it asks you if you want to match settings.
Finally if you have like 99% HD footage and just a few SD shots you may find it easier to edit in an HD sequence and then finally drop that whole thing into an SD sequence at the end and replace the few SD shots (to save double resizing them up to HD and back to SD)
You would have to make a judgement call there depending on how much you have of each format.
best wishes
Neil
http://www.patience.tv