I'm running VSF, latest version, on Windows 7 with no problems.
If you delete profile.dds from your vessel and reload it in VSF, the program should create a new profile.dds. If it doesn't, there's something wrong...either with your VSF installation...or something about the vehicle file that VSF doesn't like. That might also account for the absence of shadowing. VSF auto-generates shadowing for all vehicles, including vehicle.x/xx and associated parts, weapons, and components mesh...but it does not shadow instruments. You can increase the distance shadowing is seen in F1 by increasing "cockpit_size" from default (10m) in vehicle.cfg...you see shadowing at greater distances from viewer, but at lower resolution.