Thanks all for replying.
Squeeze indeed uses the new Grub2. During installation there is an innocent looking screen which says something like `grub-pc is being upgraded' blah blah, but not much else. Searching online for `grub2 windows' bring a bajillion sites where people report problems. It seems the grub2 is still experimental.
Based on my short experience:
* grub2 does not resize NTFS partition well.
* it does not show (by default) the Windows 7 entry in the boot menu (although it is detected during installation).
* Windows 7 is broken after the squeeze+grub2 installation.
After many hours of searching online and reading many helpful pages such as:
here's what I did to get my dual-boot working (Dell optiplex 780, Debian Squeeze + Grub2, Windows 7):
* re-install Windows 7 and erase all linux partitions (if you have a Windows-only machine resize the Windows partition using a native-Windows application).
* install squeeze onto the free space:
-avoiding any changes to the windows/NTFS partitions.
-selecting the linux partition to be installed the beginning of the free space (right after the NTFS ones).
-installing grub to the MBR (the `B' flag, which indicates which partition is bootable switches from the windows partition to the linux partition).
-boot the machine.
-login as user, change to su and do `update-grub'. This gave an output like (from memory): `Detected Window 7' blah blah.
-reboot and the grub menu now shows Windows 7 in the boot menu. Can now dual-boot Squeeze and Windows 7.