If you are into photography, and want to dabble in video then the 7D makes perfect sense as you'll benefit all ways - rather than spending money on another gadget - and if you are looking at £200 or under video cams then the 7D will blow those away in terms of IQ.
As mentioned, sound via the built in mic is pretty poor, so look at a hotshoe mounted mic.
Limitations of the 7D video function over a dedicated camcorder will mainly be the lack of constant autofocus (Nikon has just started to introduce this in the D3100 and D7000 but still not up there with a dedicated camcorder IMO).
DSLR HD video is top notch provided you don't mind shooting scenes and editing together - in other words you have to set the camera up for each scene or clip - exposure, focus etc rather than just pressing record and wandering around with the camera in control.