I just fixed this problem myself. I have Windows 7 as well. My itunes wasn't reading my iPhone, but it showed up as a device in Windows Explorer. All I did was uninstalled the USB controller named "Apple Mobile Device USB Driver." To find this driver I went to the Start Menu. Clicked Control Panel. I click Hardware and Sound. Under Devices and Printers I clicked Device Manager. Then, I looked under the collapsable tab called Universal Series Bus controllers. Finally, I unistalled the Apple Mobile Device USB Driver. Your computer should require a restart and when it boots up again the two people I've helped saw a brief Blue Screen(don't freak out) I would asume this pops up because the drivers were modified and computers don't like fiddleing with there drivers, but then the computer proceed to boot up normally. After that, just open iTunes, plug in your iPhone(I think this will also work for iPods,iTouches, and iPads, but I can't verify that) and it should automatically re-install the driver and vuala(I think I spelled it right) your device should connect now.
If this doesn't help, I'm afraid you may be S.O.L.
Keep it classy!