Yes, Win 7 works with the majority of DAW packages as far as I know. I'd recommend you get Windows 7 x64 even if you do not plan on running your DAW in X64 (32 bit applications run fine in x64 OSs). But I see no reason for not running the x64 version of Cubase unless a very necessary plug-in will not run when bridged either by Cubase's internal bridging or via the 3rd party app JBridge. The benefits of access to higher amounts of memory is just too good not to go X64 (personal opinion mind you, but I suspect shared by others). Also of note - I'd buy at least Win 7 Home Premium and even better would be Professional because of the maximum memory limit on Home Basic being only 8GB - Premium and Pro are 16GB and 192GB. While you may never use 192GB, with motherboards becoming more and more available with higher memory configurations - 16GB is a clear possibility and you will hate to be limited by your OS. All this memory is great especially when working with large projects and the ever increasing size of sample libraries.
As always your mileage may vary, but hope that helps.