SQL Server version has a known compatibility issues with Windows 7 RC. This warning is genuine and applies to all SQL Server editions, including all Express editions.
There is no need to guess about the rootcause of the above error message, as it clearly mentions about compatibility issues as a warning!
The above error was presented to me recently when I'm trying to install SQL Server 2005 & 2008 versions on my Windows 7 RC VM. The exclusive specificatin of this error is it included SQL Express editions too, as the incompatibility was fixed in SQL Server 2008 Service Pack1 and SQL Server 2005 Service Pack 3.
Without further thinking I simply hit 'Run Program' button, as it was the same case earlier that when you tried to install SQL Server 2000 on a Windows 2003 server edition. The usual practice (compulsory) is that once the setup has installed required compnents you must apply the latest service pack afterwards. Also I have seen that while installing SQL Server 2005 instance it has presented with this warning message multiple times during the installation process. As you may know that now Service Packs can be obtained using Windows Update program from the operating system, as this time I'm using a Virtual Machine that I have disallowed all sorts of networking connectivity to Internet so simply Downloaded SQL Server 2005 Service Pack 3 & Downloaded SQL Server 2008 Service Pack 1 which are the latest service packs.
Most of the MSDN blogs dictates to allow the service packs or any updates to be applied using Windows Update, where you can do that by clicking "Get updates for more Microsoft products" to start obtaining updates for SQL Server. SQL Server service packs should show up on the list of optional updates. Whenever any new updates are available there will be a small icon flashing on bottom-right corner of your screen stating 'New Updates are available' and what I do is click on that icon to see "Check for updates" link on the left pane of main Windows Update window. As it is your system you must know what kind of updates are applied, that way you can control the installations too.
Then coming back to the SQL Express edition that I have installed in addition to 2005 & 2008 DB engine instances, so I have installed 2 additional instances of SQL Server 2005 Express and SQL Server 2008 Express (Runtime Only) by Downloading SQL Server 2005 Express Advanced Edition SP3 and SQL Server 2008 Express SP1, as you can assured that they have upto date service packaged, saves you the time of applying service packs to any existing SQL Express edition from your software library source. Microsoft has the practice to repackage all the SQL Express editions with latest service packs in order to ensure they are not missed as it is free to use.
Finally I would like to refer the one of the best post from Peter Saddow about Creating a merged (slipstreamed) drop containing SQL Server 2008 RTM + Service Pack 1 that will slipstream the original source media and SQL Server 2008 Service Pack 1. Once you have created this drop, you can install SQL Server 2008 SP1 in a single step!