After searching the internet I found out that alot of people have had great difficulty getting PDAnet to work in Bluetooh Mode with Windows 7. Some had given up and gone to tethering. I pieced together some posts from this board and the Android Forum on how to set this up. I hope someone finds this useful. I was going to spend 55$/month for a USB modem. Now I don't have to.
1. Go into Internet Options
2. Click on the Connections Tab.
3. Select Add to the right of Dial Up and Virtual Private Network settings.
4. In Windows 7 select Dial Up Connection
5. Ignore User Name and Password.
6. Use 123 as the phone number.
7. Click on the Options Tab.
8. Uncheck all boxes except Display Progress While Connecting.
9. Click on the Conections Tab and select Dial whenever a Network Connection isn't present.
10. Make sure your phone is paired with your computer.
11. Using Control Panel, Type Bluetooth in the search box, and select Devices and Printers.
12. Right click on your phone and select Properties>Services.
13. Make sure that the box next to Dial Up Networkibg (DUN) is checked.
14. The final step in getting this to work in Windows 7, is that you have to start IE, but don't click on Connect before you connect to PDAnet. Once you start PDAnet, click on Connect. If you don't you will get an error message and it won't connect.
A. Open IE and wait for the Connect box to appear,
B. Start PDAnet Bluetooth DUN on your Droid,
C. Click on Connect on your computer screen.
Thanks to all the people whose posts helped me to figure this out.