Does Windows7 support symbolic links (folder 'shortcuts')?

Yes.

NTFS had the feature for some time, junctions have been available longer, and Vista was the first version of Windows with support, Windows 7 has improved it, apparently, but I'm not sure of the specifics off the top of my head.

From within an elevated (run as admin) cmd window you need to use the command mklink, usage is as such:

mklink <flag> link target

This creates link which points to target, both can be absolute or relative paths, link must not exist and obviously target must.

You can use the available flags to adjust the type of link created:

<no flag> - file symbolic link
/H        - file hard link
/D        - directory symbolic link
/J        - directory junction (hard link, essentially)

Yes! I missed this feature in XP but they did add it in Widows 7. check out http://www.windows7home.net/how-to-create-symbolic-link-in-windows-7/