I'm not familiar with the 7D, but I have a 5DMII, and as I recall 1/50th is what many people recommend for video shooting. You might try one of these forums to get suggestions for ideal 7D settings:
http://www.cinema5d.com/viewforum.php?f=64...4ddfe08e625d218
http://www.dvinfo.net/forum/canon-eos-7d-hd/
If the video doesn't appear smooth, it might be that your shutter speed is too fast.
As far as output format, that depends on where the video will be seen; Web? TV? Projected? Let us know.
In addition to using a polarizing filter on the lens, you could (the problem is too much light, right?):
use polarizing or ND gels on your lights
dim the modeling lights, or use lower wattage bulbs if they're not dimmable
use (low level) available/ambient light (streetlights, practicals, flashlights, etc)
shoot at night
make sure you're ISO is set low (100)