Our SQL Server 7 was setup to be case sensitive. It is causing us problems with some 3rd party applications. Do I have to reinstall it again to set it up as case in-sensitive ?
You don't have to reinstall but the situation is almost as bad as reinstalling. The following quote is from SQL BOL under the topic "Changing the Character Set, Sort Order, or Unicode Collation." This topic contains instructions for changing the collation.
"The character set, sort order, and Unicode collation are fundamental to the structure of all Microsoft® SQL Server™ databases. In order to change one or more of these settings, you must rebuild the master and user databases." Terry L. Broadbent - DBA
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