With the GOG installer for The Incredible Machine, it's impossible to individually select all the games in Windows 7. Once the user clicks the "Options" button in the installer, this is how the checkboxes are shown in Windows 7: http://i.imgur.com/WXE3RG0.png

Now compare that to what it looks like in Windows XP: http://i.imgur.com/cVNBTz5.png

As you can see, the Windows 7 version is missing a lot of options since they are overlapping. This makes it impossible for the user to individually select which games to install. In Windows 7, the button for "Create Desktop icons" is missing entirely and the DOSBox option overlaps one of the games.

Can the GOG devs please update this installer so it will display all the checkboxes correctly in Windows 7?

Sorry to dissapoint, but it's not the installer, it's you. See the attached image.
It is possible that you have the fonts scaled, thus they don't fit properly. Go to Control Panel->Appearance and Personalization->Display. If the font size is not 100%, change it to 100%, log off and back on, and run the installer again.
If this doesn't fix it, I'd suggest sending support a ticket describing the problem.

Actually, if GOG would use the new installer then this wouldn't be an issue. Here is an example of the newer GOG installer for Windows 7: http://i.imgur.com/pNgMhel.png

In that newer installer, my font settings do not have to be changed, and all the Options can be selected clearly. If the GOG devs could update the installer this would fix the problem.

All v1.x installers are set to be updated to v2.x at some point in the future. So yes, TIM will be (eventually) updated.
On the other hand, you claim that the current installer is broken for Win7. It's not.