7.0 is the very first version of Windows Phone 7 with no updates. 7.1 is the internal version number for Windows Phone 7.5 (codename for this was Mango).
All new phones that run Windows Phone 7 are 7.5. Most phones have an update available to update from 7.0 to 7.5.
Considering that there are very few pure 7.0 phones left, I would compile your app for 7.1 internal version, which is 7.5 external version.
Also, I am not sure even if the Windows Phone Store even accepts pure 7.0 apps anymore either.