Any unpaid money will be assessed a fine and penalties. If, as you claim, they already have the money and actually owe you, everything should be fine if you include all your documents and file by mail. Please note, you have missed the 3 year deadline to get the money back. The IRS consider it an excess collection.
That is mostly correct, with some nuances.
If the IRS thought that s/he would have owed any money (assuming that s/he was not self employed, with no 1099s) then they would have already attempted to file a tax return for her for that year, before the three year mark, based on the info that they received from outside parties. Since we are talking about 2007, and assuming that that the OP has filed taxes since then, I think its safe to assume that no taxes are owed.
You are completely correct that it is too late to file a return for a refund at this point.
There is no reason, at this point, for the OP to actually file a tax return unless it is necessary for some other purpose. Now, if the IRS DID file a tax return for the OP, showing a balance due which would have been incorrect for the OP's situation, then yes, the OP should file an accurate return for that year. The OP won't get any refund that might have normally been due, but it would eliminate any balance due if an accurate return reflected no balance due.
There are no penalties for late filing a tax return that would have resulted in a refund.