manidaj,
Sorry that you are seeing this issue.
Can you please check whether you can browse the deployment location from the Servers view (right click on deployed project from servers view and select Browse deployment location) to ensure it is deploying to the correct place ?
If it is still showing the old code, can you please remove the deployed project from WAS 7.0 (right click on deployed project from servers view and select remove deployment) and then deploy the project again to WAS 7.0 by right clicking on WAS 7 server in servers view and select Add deployment option.
If you could still replicate the issue, can you please answer some queries to help us investigate further :
1) Can you please share your installation details from MyEclipse > Installation summary > Installation details ?
2) Please attach the deployment.log file and also copy paste the contents of the .log file which is located at <workspace dir>/.metadata/.log to help us investigate further.