I am sure that in your application based on SDK 1.7 you have the following parameter in CSDEF:
<LocalResources> <LocalStorage name="Microsoft.WindowsAzure.Plugins.Caching.FileStore" sizeInMB="1000" cleanOnRoleRecycle="false" /> </LocalResources>
Based on this error, I see that you are updating a previous deployment based on SDK 1.6, which does not have the settings above and why you are getting this error.
Since your configuration has been changed, the update does not work. As a workaround to this problem, you can first perform a new deployment in your intermediate slot, and then a SWAP VIP with products to upgrade it.
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