Is it true that only the HVR-Z7U and the newer Sony decks (HVRM35) can playback progressive hdv footage that is shot on these cameras? Does anyone have first hand experience with this?

The short answer is it depends how you shot it.

Here's a similar thread:

http://www.dvinfo.net/forum/sony-hvr-v1-hdr-fx7/484970-fx7-24p-30p-playback.html

Bottom line: If you shoot p over 60i, no problem. If you shoot Native p then yes, only other cams/decks that do true progressive can play it back.

Just to add to Adam's comments, if you want to shoot progressive (which I highly recommend), then use the Memory Recording Unit instead of tape. That eliminates the incompatibility problem with older decks.