I had a reply from sony support:
Dear
Thank you for your reply.
In regards to windows 8.1, we regret to advise you that it is not compatible. If there are any updates in the future, it will be posted on our website in the downloads tab of your camera page.
I am sorry I cannot be of greater assistance on this occasion; however I hope that my e-mail has gone some way to clarifying this matter.
Thank you for your enquiry
Sincerely yours
Hagar
Sony Customer Support
I had done some checking o this problem and the reply from sony suggests they have not done any. A quick google of "sony camera windows 8.1" revealed that many people are having this problem. What is more is is recognised by Microsoft as a known problem and they are preparing a fix - see here
http://answers.microsoft.com/en-us/windows/forum/windows8_1-hardware/sony-dscw7-not-recognised/5cee9...Until then, we will have to wait or try the suggested workaround.