My first tractor was a recoil start MF 7. It had already been repowered with an 8hp Tecumseh and yes, unfortunately they won't fit without cutting the grill to fit the air cleaner.
I am not sure why, but the hood also needs to be trimmed to fit the larger blower housing. I can only guess that the mounting bolt holes are offset on a 7 since the bigger engine fits under the hood of the 8 just fine...
If it were me, I would lean toward finding another 7hp Tecumseh, or any other engine that would fit without cutting everything up. Seems like it's getting harder to find a 7 that hasn't already been modified. A Wisconsin or Briggs may also fit without sheet metal modification...?
I was also told by an old small engine mechanical that Tecumseh engines, especially the aluminum block and snow king engines are best suited for winter weather since they have a hard time staying cool in hot weather. I suppose it would not matter much if you weren't using it to mow with though.