Seacue, can you get hold of a different hard disk to install Win 7 on? That way you can go through all the troubleshooting confident in the knowledge that you have your original XP HDD securely available to go back to if you can't get 7 to play ball.
Most surprising that such a relative new PC should have problems with Win 7. I assume that it's on the Win 7 compatible / certified list?
I would look for and exhaust alternatives before flashing the BIOS, as there is always the possibility (however slight) of something going wrong. Googling the problem should provide you with a number of possible solutions.
SD