I don't have the D7000, but I do have a D3100 and have the same problem with flash and Auto ISO. I think that it's a firmware problem since I do not have that problem with my D700. I've tried it with both the built in flashes and with my SB900. With the D3100 and the built-in flash, and my preferred ISO at 100, the camera raised the ISO to 3200 for a shot of a clock on a wall six feet away in a room with daylight coming in thru numerous windows. The D700 raised the ISO to 250 for the same shot. Both cameras took the shot at 1/60 at f8. Granted, there may be a difference in power rating, but 3200? Without the flash, the D3100 took the shot in Aperture priority at 1/8 at f8, also raising the ISO to 3200. The D700 had the same results without the flash.

Until there's a firmware fix, I will make it a point to turn off Auto ISO when using flash (if I remember.)

Correction: I'm not sure that I have the same problem with the SB900. After a few more test shots, I only see a one stop difference in the ISO and this could be attributable to differences in the camera formats and my unscientific test methods, and, of course, the D700 could be wrong.

Update: I changed my Auto ISO settings to let it float to High 2 (12,800). I took the same photo and the ISO did, in fact, float to High 2. I think that there is definitely a firmware problem with the D3100, and I would be curious if some D7000 users have noticed, or would check to see if they get, similar results.