I'm not sure what is up with the YAF forums, but I could not actually get to them when researching this same issue.
To confirm for anyone having this issue, YAF 1.95 and 1.96 work with DNN 7 - I have instances of both with DNN 7.0.0.0 & YAF 1.95 at www.electricalknowledge.com and DNN 7.0.0.4 with YAF 1.96.1-5117 at www.hydrolific.com
I ran into this exact issue on my latest install using DNN 7.0.0.4 and YAF_DNN 1.96.1-5117 for hydrolific.com
The steps I took were: (try #3 first)
1. Run AspNet_RegSQL.exe out Framework64/4.0 (not sure if needed/helped)
2. Run AspNet_RegSQL.exe out of Framework/2.0 (not sure if needed/helped)
After about 20 minutes of searching, I found an unrelated application that had the same problem, and the suggestion was to take the web app offline and then back on. I just did....
3. Restart Website in IIS - hit next and instead of the error....the setup finished.