can msde be used locally for development and then upload that to SQL 7 on the web?
yes it can be used for development. if by "upload to SQL 7" you mean copy your database structure/data from MSDE to SQL Server then yes to that as well.
yes. if one is aware of the limitations of MSDE (such as performance decrease after 5 ocncurrent connections and a 2GB per db size limit) and properly builds an application to avoid these limitations, it is an excellent choice as a small scale production server, especially for intranet apps that won't have many connections.