I think SR3 for Poser 7 is pretty important.  I would recommend you DO install it.  I'm pretty sure SR3 fixes a problem with shadows in raytraced images.  I'll have to look because I'm sure I saved the 'before SR3' and 'after SR3' image sets I have.

I too recommend looking into your Windows Registry.  Maybe there's a path statement wrong there.  Like a couple of other posters here I had no problems with the SR3 update - in fact it fixed a number of bugs in Poser 7.  Something might have gone wonky if you moved or copied a runtime.  I would try a re-install before giving up on the SR completely ...

Best Wishes,
Rªnce