Maybe this thread will help: PHP Site Assistant error. The person who started this thread was getting the same exact error message.
(I found this thread by clicking the above advanced search link and entering "Error 7" in the search form.)
But the solution there didn't help me. I only have the error when I change to Port 8080. If I leave it at 80 it works. I'm thinking that maybe the php assistant is kind of hard wired to port 80. As in...when I first make the site in php assistant, hooking up to the apache server, with port 80, it finds the server. If I put in for instance just the ip 192.168.254.250 it finds it. If I put in 192.168.254.250:80 it does not find it. Likewise with :8080.