Have you tried mounting the iso on the existing system and using
sysinstall to partition and install 7.0 on the new hard drive?  

There may be a problem with the ide controller or ide cable.  Have you
tried swapping cables?  

You could also do a minimal 6.3 install with no additional packages as
you say that cd works.  Then do 'freebsd-update -r 7.0-RELEASE
upgrade'.  See the man page on freebsd-update.  Afterwords either
pkg_add -r, sysinstall, or use the ports to install packages.
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