Why are you resizing the crops to make the D40 look all blurry?
Because comparing images at the same actual size is the only thing that makes any sense. (disclaimer: throw the same magnification of sensor size in there as well, but in the case of this thread for aps-c dslrs it's all approx the same give or take a tiny bit).
Let's say you have a 7d shot in one hand a D40 shot in the other hand. Now, say you look at the at the image at 100%. Imagine that *per pixel* the D40 is sharper (it won't be, but let's assume). If you are going off of the "pixel level" image quality reference that you said matters to you then you might conclude that the D40 has better image quality. This would not only be the wrong conclusion but would in fact also be completely batcrap insane!
This would be the same thing as doing this:
1. I walk into a store and buy two rolls of 35mm film. I buy a role of Velvia 100F and a roll of that Kodak Ultra Max 800 film.
2. I take some pictures and have them printed. I want to compare the image quality between the two films. The 800 speed film has big grains (think: less megapixels) and the Velvia 100F has small grains (think: more megapixels).
3. I see this and think okay, well we'll print them based on the grain size (think: viewing the image at 100%). I print the Kodak film at 4x6 and turn the Velvia into a 18x24.
4. I then look at the pictures and conclude that the films have about the same image quality.
Insane, right? Yet this is what we are doing when we compare cameras with the same size of sensor but different megapixel counts at 100%. Instead, we need to compare images at the same actual size (think: taking two 35mm negatives and printing both at the same size).
Upping the size of the smaller image is the best way to do this. It does not introduce more noise. If done right it does not hurt the image quality. It does not remove details from the image. You could downsize the larger image but doing that tends to remove detail--and some argue it sometimes tends to have a sharpening effect on images--still, it is sometimes useful to do that for comparisons.
To take the argument to a ridiculous level: Say Nikon introduces a D9000 extreme with 90megapixels. Say at the pixel level the image is 3x as noisey as that of a D40. I swear some people here would say that the D40 had better image quality. It would happen.
And yes, if you are doing only screen viewing then viewing images at 100% is even less relevant than in prints. The size of your screen does not magically change when you get a higher megapixel camera folks.
Here is a write-up by a very smart guy explaining why more megapixels is a good thing: http://photography-on-the.net/forum/showthread.php?t=747749 . I highly recommend reading it.
Ken Rockwell's site has some good info (for example he tells you to just go out and take pictures, get into it--best advice) however some of the stuff he says, like about the D40 being teh best camera evah, or his love affair article for one of the Canon digital elfs also rings a bell lol, are often really nuts and/or flat out innacurate as hell. This does not mean his site isn't great. He actually comes right out and tells you that his stuff is for entertainment purposes and should not be taken seriously--he comes right out and says he does a lot of it for fun. Seems like a great guy.
Now, one last thing. Everyone knows the 7d's iso 12800 is horrible right? The reviews say it's for emergency use only, right? Looks horrible at 100% that's for sure! Well here's an iso 12800 test shot from last night, processed with my one-click photoshop 7d noise reduction action. It's re-sized to be equivalent to a 100% crop from a D40 (it was re-sized to 6mp then i took a 100% crop from that):