HAL is Hardware abstraction layer and it loads as part of the boot process. It
should be installed by default but it can be installed separately. It is likely
that by upgrading instead of doing a fresh installation that you had a
dependency problem that prevented HAL from installing completely.

Going the upgrade route is not the best way to get the newer version for
precisely the reason you found out. At some point you are placing the old
alongside the new and it can cause problems. Both 7.04 and 7.10 are dated. It
may be hard for you to resolve this issue as 7.04 will no longer be supported at
the end of the month. It is at the end of its life and 7.10 only goes till next
April.
Whenever possible doing a fresh installation is preferred. There are several
reasons for this, but the biggest one is problems such as yours and then you
don't have a Live CD of the later release to troubleshoot and therefore you must
start over. It is pennywise and pound foolish to try to get a release by
upgrading. If you have a problem you will have to repeat your work and will
probably use more bandwidth in the end. The longer you run a release the more of
a patchwork it becomes and the more likely you will have a problem. This is true
for any OS, Windows included. The only way to avoid this problem is to not
update in the first place and to always install from CD. Placing anything on top
of the old is a problem waiting to happen.
You can try to install HAL through the repositories. Here is a link to what HAL
does and its dependencies: http://www.freedesktop.org/wiki/Software/hal