The ratings are meant more for parents to be aware of what kind of games their kids are playing and to decide if their child can handle it or not, because in theory the parents are supposed to be the only ones who can buy them.
Of course it doesn't always play out that way, or some parents will just buy games without bothering to look at what's in them.
When I was 5 I was playing games like Warcraft 2 and Doom. My parents did make sure to reinforce the idea that you don't do that in real life, but it was a bit more than "hey, you shouldn't do that". They also made sure I finished my homework/chores and went outside on a regular basis.
I think the problem here is less that a 7 year old is playing violent games and more that parents are being poor parents but not wanting to blame themselves. I agree that parents need to be more on the ball, but I don't think that simply playing the video game is the problem.
I'm not too worried about the whole "video games are the devil!" as that's just a repeating cycle that has be done with rock n roll, rap music, comic books, violent movies, and now video games. They never win.