yes a 7-speed freewheel would work. However, the guys at the shop are probably talking about a 7-speed cassette hub which would can buy for cheep off the shelf and are spaced at 130. I.E. no good for the original poster. The best option and if should cost no more than $100 so maybe 50 pounds... would be to rebuild the rear wheel on the original hub as stated earlier. Open pro rims are really expensive just get a nice ambrosio or something which should be much more affordable.

P.S. the scratches aren't that big of a deal since they can all be polished out.