Both the 7D and 50D are amazing cameras! The 7D is obviously a lot better than the 50D, but that's not to say the 50D is in any way bad. Both cameras will really benefit from high quality lenses though, so given a choice between a 50D and a top quality lens or the 7D with your existing lenses, then the 50D + lens would probably be the better choice.
The difference in price between camera bodies is often just extra features or speed but rarely better quality pictures. The price difference in lenses is very much better image quality, with lenses, you really get what you pay for.
I have the Canon 17-55 f/2.8 lens that John mentioned above and it's really an amazing piece of kit. Add that to a 50D and you will get much better results than with a 7D and your existing 18-55 kit lens. In fact you'd probably still get better result from your 350D and that lens!
As for compatibility with your existing lenses, both bodies should have no problem. They are both APS-C (EF-S) bodies, so every lens should work fine. The Canon lenses will definitely be 100% compatible, the Sigma lens could potentially (although very unlikely) have a problem as they reverse engineer the Canon interface, but nearly all Sigma lenses can be re-flashed to make them compatible with newer bodies if you do have a problem.
Its your choice what to go for, but IMHO the priority for investing your money in camera equipment would be better put towards lenses than bodies!