Greg,
Not quite. Actually it IS possible to make 9.5 SP1 compatible with Office 2007 documents. At least, when it comes to opening/editing/saving, HTML viewing (Filterpack) is a different topic, as you don't get the latest Oracle Filters for 9.5 SP1 anyway. Full Office 2007 support is only available with 9.7.1 and Filterpack 1.0.5.
All that needs to be done is to extend the database schema (MimeType in DVersData to 255) and update the mime.types / mime.gifs with the correct MimeTypes. This is known to work and I cannot think of any negative impacts, if you know what you're doing.
We have done that in a project some time ago and it works like a charm.
On a different note, 9.5 SP1 has been phased out anyway, so all this is totally unsupported by means of official product support.
Rather than tweaking 9.5 SP1 it is indeed wiser to consider an upgrade - you can't stay on the old product forever and update all other components such as OS/Database and whatnot.
Jack