That whole SDK is a pain. There is one emulator, I can't remember the name of it but google "Windows7 Phone Emu" without the quotes and keep Windows and 7 as one word.
FYI for anybody that uses Steve's method, don't search for Windows7 phone emu as there is no such things as a windows 7 phone, it's windows phone 7 or 7.5(when it comes out) emu.