huh? If you open a flash 5 or 6 file in mx2004, and save it back out, the .fla is converted to the 7 format, and the publish settings stay the same. It would be a stupid idea for MM to make the default behavior for an older file format opened in the latest version to suddenly change your publish settings. Think about it.
Its bad enough that the latest version throws a large roadblock in front of your productivity line by not always parsing/converting older .fla files correctly, it would be even worse if you sent a published file to a client that USED to work but now doesn't because the program decided without telling you to go and move your publish settings.

cancerinform: if you want to change the flash movie to flash player 7 just go to the publish settings under SWF and switch it.

Its always very smart to try to output at the lowest possible plugin version for maximum compatability. After all if all you have done is open a flash movie in MX2004, why would you save it out to a higher version when it worked as a flash player 5 in the first place? Newer isn't exactly beter as MM has been so graceful to show us in this latest release