I'm posting this around a few different places because I can't find a solution. I'm really stumped right now.

I'm having a problem where I can't create a debug device under Windows 7. I've tested both the Windows 7 Beta and RC1. In both versions I have been unable to create a d3d9 device when I switch over to the debug runtime using the DX control panel. I've tested both my own application and the samples in the SDK to the same effect. It doesn't appear to be an issue with my code. This problem doesn't occur when I switch over to Vista.

Here's the debug output I'm seeing: 

Direct3D9: :====> ENTER: DLLMAIN(652ea170): Process Attach: 00000f48, tid=00000a58
Direct3D9: :====> EXIT: DLLMAIN(652ea170): Process Attach: 00000f48
Direct3D9: (INFO) :Direct3D9 Debug Runtime selected.
Direct3D9: (WARN) :****Direct3D DRIVER DISABLING ERROR****:First call to DdQueryDirectDrawObject failed!
Direct3D9: (INFO) :======================= Hal HWVP device selected

Direct3D9: (ERROR) :The specified adapter does not support a D3D9 hardware device

Direct3D9: (ERROR) :Failed to initialize Framework Device. CreateDeviceEx Failed. 

From the nVidia control panel, this is what my system looks like:

Processor:              Intel(R) Core(TM)2 CPU          6600  @ 2.40GHz (2400 MHz)
Operating System:       Windows 7 Ultimate, 64-bit
DirectX version:        10.0
GPU processor:          GeForce 8800 GTS
Driver version:         185.85
Stream processors:      96
Core clock:             513 MHz
Shader clock:           1188 MHz
Memory clock:           792 MHz (1584 MHz data rate)
Memory interface:       320-bit
Total available graphics memory:        1079 MB
Dedicated video memory: 256 MB
System video memory:    0 MB
Shared system memory:   759 MB
Video BIOS version:     60.80.18.00.01
IRQ:                    16
Bus:                    PCI Express x16

Any ideas?

I have the same problem with a Quadro FX 1600M.  You might need to roll back your drivers, because 185.85 is still broken.

186.03 does not fix this.

This is the answer I got from Microsoft DirectX SDK team:

The March SDK does not install the proper version of d3d9d.dll on Win7, this will be fixed for the Aug release of the DxSDK.

There does seem to be a workaround; you should be able to install a Vista driver (for Nvidia these are versioned 7.xx.xx.xxxx) and get debug working again.

Will there be a new DX SDK for the Windows 7 RTM launch?

yes, on another thread it was stated August or so for the next DX SDK with full ( not preview ) D3D11 support.

The August 2009 DX SDK does indeed fix this problem.