As I was writing this, I found the solution.

------------------------------
Restarting didn't help.

Tried updating my graphic drivers - I think it actually made it worse. Now the lines appear stronger even at low opacity. Or maybe I'm imagining.

Read somewhere that turning off video hardware acceleration can help. Took me a while to find out I can do that only through some nvidia control panel. But turning it off didn't help either.

I know PS7 doesn't work well with some versions of vista for some people, but only in terms of not starting or crashing.
------------------------------

As I began complaining in this post, I figured there has to be some update.

Checked on Adobe's site, and found this PS7.0.1 Update
. It worked
Lines are gone, blur is fixed, and everything seems to work smoother and faster.

Thanks for the help anyway