Any chance you have more than 4GB free on the drive?
If so, you might try temporarily filling up space to make it <4GB.
FM7 is a 32-bit app. The patcher may not be coded to handle more than 32 bits worth of free space on the drive (and might actually see it as a negative number).
A less likely suspect is Win7 itself. If it's Win7/64-bit, that might be a problem all by itself, in which case you'll need to re-install under XP32 mode, which you may or may not be able to do depending on exact Win7 version, and whether you still have the original install media and CD key.