Is that 7-hour layover from touchdown to take-off? If so, it's a lot shorter because you'll need to deplane, go through immigration and then on the backside, go through security again. So more like 4 hours. If you've already made the deduction, 7 hours gives you more time...but not a lot.
Blue Lagoon: I'd recommend against it unless you're going to go in it, because otherwise, it is just a large shallow pool with warm water. It is NOT especially scenic in itself; it's artificial and set in a lava field, of which there are many to be seen. On the other hand, going into it is a pleasant enough experience, and if all you have is 4 hours, it might be what you want.
Getting into Reykjavik is easy without renting; the Flybus from the airport takes you into central Reykjavik, and from there, the town is all walking distance (or if you want to go further out, there are taxis). It's an interesting town with some good food options (see other posts here). There are several interesting museums at hand; for the short time you have, the best bet might be Reykjavik 871+, an underground museum near the City Hall; it centers on an excavated 9th century Viking longhouse from the early settlement period, but also has a lot of fascinating material on Iceland's history. Or, if you're traveling in spring or summer, you might inves your time in the Arbaer farm museum on the edge of the city; it was a working farm for centuries up until the late 1940s and has a fascinating view of Icelandic rural life.
Simplest way to handle this, though, might be to use one of the local tour operators. We did several tours with Reykjavik Excursions (http://re.is) which is also the company operating the Flybus. They may well have tours that interest you and can fit with the flight schedule.