I was able to get it to install Windows 7 finally. I don't know what I did different. All I did was create a new virtual machine with the same settings as the first one and it worked.
Now I have another small problem. On the Windows 7 desktop, the mouse does not move good at all. At some places, it is like I am hitting a wall and have to move the mouse really fast to get it past the wall.
Also, I have tried installing the guest additions but nothing happens. I am supposed to select the guest additions from the Virtual Media Manager and an autoplay box is supposed to come up but it never does.