I think you need to set your priorities before you consider either of these cameras. These are two completely different cameras that shouldn't really be pitted against each other. First, I would decide what market exactly you are in. Do you want something really light and pocketable (The SD850 is nearly half the weight of the G7) to possibly complement a larger camera? Or are you willing to sacrifice some portability and weight for the wide set of features and improvement in quality?
The G7 is obviously a "better" camera as far as taking pictures goes, but it's also in a completely different and much higher end segment. Figure out which suits your needs more, they are both fine cameras.