As many readers already know, the HTC Dream was long ago abandoned by carriers, and left to continue life with Android 1.6. My T-Mobile G1 (HTC Dream) still has Android 1.6 and while it can technically run Android 2.2 which is what CyanogenMod 6 is based on, users who do have CM6 often attest that it get very sluggish and unresponsive sometimes. One can imagine that CM7 would simply make the experience even more slow.
This development will certainly be a blow to many members of the Android community who still own and use one of those devices. The Dream and Magic have mostly identical internals, apart from the external slide-out keyboard that comes with the Dream. In fact, both devices share the same page on CyanogenMod's site itself because of this.
However, the reasoning behind this latest development is no mystery and makes sense for the greater good of the community. Now that the developer team can start worrying less about whether or not their code is optimized enough to peform correctly on these two handsets, we might start seeing even greater things coming from that talented team of developers.
The Dream was originally released as early as October 2008, and seeing as it is now almost two and a half years since then (the Magic released a few months afterwards), I feel I can honestly say that the device has been strongly supported for a long time, and arguably longer than many of us would have believed in the beginning.
This is not the end of development of ROMs for the two phones, as many developers are still putting work into making ROMs for these popular devices which still hold a place in many people's hearts and will continue to have a close following for many years to come.
Some conjucture indicates that we may even see some unofficial CyanogenMod 7 ports for these devices appear. That shouldn't be too hard to believe considering that these were the two phones that started it all.
Image from Phandroid