The grayed out "Auto" setting is misleading. When in "P" you don't set Auto in the menu section where you normally set a numerical ISO value. Choose a numerical value like 400 for point and shooting.
Then once you set 400 you are returned to the "ISO sensitivity settings" screen. Lower down on this screen set "Auto ISO sensitivity control" to "On".
Set the next choice "Maximum sensitivity" to "1600".
And finally set the "Minimum shutter speed" to "1/320s".
This combination makes a decent point and shoot mode that will cause the camera to oscillate ISO from 400 to 1600, all the while maintaining wherever possible a decent 1/320 shutter speed.
The only time the other grayed out Auto choice you refer to is available is when you have the camera in full (green) auto mode.
One difference between P and full green auto is that while in P mode the flash will not pop up on it's own.
If I am not being clear feel free to ask!
The other thing is low ISO purists will set the numerical ISO to start at 100 rather than 400. But D7000 ISO 400 is so good that I wouldn't worry too much about setting 400 as your start point. The benefit of 400 is that the camera will be more inclined to give you an even faster shutter speed than 1/320 and give you more action stopping power.