I don't think YABU, at 7 she is very young still. I would let her go to the party but pick her up at 10pm or so. She might secretly be relieved to have her mum give her 'an out' so to speak. And there could well be another parent relieved that you are doing that so they can do likewise.
I think sleep-overs for pre-teen children are totally over-rated and totally unnecessary. Young kids are often very nervous and there are certainly child protection issues, as well as issues to do with different levels of supervision in different homes when you don't know the parents well. For example: watching age inappropriate/scary films, unsupervised late night internet browsing, possible exposure to drug & alcohol use by other family members, not knowing quite who will be at the house on the night)
I seem to remember sleep-overs as also being the times when kids get a bit feral (all that sugar, excitement, & lack of supervision). Kids can be made to feel left out & there can be bitchiness, all very hard to deal with for a small tired child in an unfamiliar environment. Plus, for young children, it's a long period of time to be "social", they get tired (obviously) & stressed.
I never let my DD either go to sleep-overs or have sleep-overs at house until she was 12. She was sometimes quite keen to do the sleep-over thing, but more often than not, was actually really happy to come home at night to her own bed. It was unusual amongst her peers, but did her no harm socially or confidence-wise whatsoever.