Picasa 3.5 is compatible with Windows 7. However, you still need to follow a few extra steps to ensure Picasa works as expected. During the installation, Windows backs up all your application data to a new directory, but Picasa and other applications that rely on this data will not see it. To fix this, you'll just need to copy and paste your data to the right place. This will ensure that Picasa doesn't need to re-scan your whole hard drive, and you don't need to re-create your albums and name tags. Google has posted some guidance to ensure that Picasa works properly following an upgrade from Windows XP or older versions of Windows, to Windows 7, you need to make sure that your Picasa application data has been transferred to the right place.
Full Article: Picasa Help