This K-7 user has updated the new firmware, but he found now his K-7 ISO 800 shots are even more "measly". See the crops of samples he posts and I am quite sure that you will feel for him!:-
http://www.pentaxforums.com/forums/783991-post45.html
The shots are really so scary and terrible! All EXIF data are kept intact so you can check more shooting details yourself.
He further stated that going back to firmware 1.01 could eliminate the problem:-
http://www.pentaxforums.com/forums/784046-post48.html
But then I think the K-7 Jpegs are really just too noisy at ISO 400 already with original firmware. So?
Besides, someone in the same thread has done a quick test and posts a ISO 100 shot, a ISO 3200 shot and 3 comparison shots for normal Sharpness, Fine Sharpness (1) and Fine Sharpness 2 in Full Size. Go figure out the differences, if any visible, by yourself:-
http://www.pentaxforums.com/forums/783791-post38.html
The ISO 3200 shot is really unusable btw, IMHO.