I called the tech support guys and found out that the 5th item in the Windows Logon option is also required for SSO. After enabling item 5 "Endpoint Encryption logon component always active" and re-running my test, everything is working as expected on Windows 7. A new message stating the login password was invalid is displayed on what had been the blank (credential provider) screen, along with an OK button. Clicking on OK takes me to the Windows login screen. Enter the new windows credentials and I'm into windows and the Pre Boot information gets updated.
So, it looks like the necessary options for Windows 7 SSO are 1, 2, 4, 5, 6, 7. Windows XP seems to work fine with option 5 enabled or disabled, but tech support said that it should be enabled.