You can, (but may not want to) replace the Preferences file by pressing down Command-Option-Shift (Mac) or Control-Alt-Shift (Windows) immediately AFTER you start launching Photoshop 7 and keep pressing down until a dialog box pops up. It will ask if you want to delete the "Adobe Photoshop Settings File." If you say Yes, this deletes NOT ONLY the Photoshop Prefs file, but also the entire Settings folder which includes your Color Settings, Actions, ToolPresets, and others.
OR
You can manually replace ONLY the Prefs file:
Quit Photoshop.
Locate the Adobe Photoshop Prefs file.
Delete the file.
Restart Photoshop.
Reset your Preferences.
Reload any custom palettes.
Find your Preferences file in Photoshop 7
Windows XP and Windows 2000: Documents and Settings\<username>\Application Data\Adobe\Photoshop\7.0\Adobe Photoshop 7.0 Settings (see figure 3)
Windows 98: Windows\Application Data\Adobe\Photoshop\7.0\Adobe Photoshop 7 Settings
Mac OS X: Users> [username]> Library> Preferences> Adobe Photoshop 7.0 Settings
Mac OS 9: System Folder> Preferences> Adobe Photoshop 7.0 Settings
This info came from
CreativePro.com - trashing preferences file