Making your Windows 7 a WIFI hotspot for Android?

You could try VirtualRouter, which seems to fit the bill: http://virtualrouter.codeplex.com/

Have you tried using the built-in feature of Windows 7 for hosting a WiFi network using infrastructure mode?

netsh wlan set hostednetwork mode=allow ssid=<SSID> key=<Password>

Don't forget to start it after creating it by using:

netsh wlan start hostednetwork

If you desire to stop or see how it's currently configured, use:

netsh wlan stop hostednetwork
netsh wlan show hostednetwork

If your smartphone still can't connect to the Internet, you might need to enable the Internet Connection Sharing option that you can find on your network adapter properties under the Sharing tab: