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OK, After pulling my hair over this problem for few days.......
I finally discovered that SC7 does convert Projects but it does not let you select single project. Also if there is more than about (I guess) 6 or so projects to convert those which are down the list will not be visible - making you think they are not available. another words after running CONVERT ALL I can see my old SC6 Project converted to SC7 version.
At the moment then (until it is fixed) the conversion policy is like ALL or NONE.