I really feel Durin VII does need to be incorporated into Erebor and it might solve some of the issues that people have with Young and Old Dain II ringheroes.
Durin VII is alive in the Third Age, whether you want to consider him the son of Thorin III, Thorin III, or grandson of Thorin III is up to you.
Durin VII is alive for the following reasons:
1. He was predicted to be born at the Battle of Azanulbizar.
2. The Fourth Age is short for elves and dwarfs and is the dominion of man, Dwarfs have to reconquer Moria fast.
3. Dain II lived for 242 years and probably would have lived longer if he hadn’t been killed. Thorin III was born in 2866, going by Gimli’s birth in 2879 TA, which would put his father Gloin at 96 (Gloin was born in 2783 TA). So if we add this number to Thorin III this would make Durin VII born in 2962 and would put him in his 50’s during the time of Lord of the Rings—War of the Ring.
4. Durins are considered to be deathless—we see that Durin the deathless lives into the end of the 1st Age, Durin VI lives for 249 years but is then slain by the Balrog of Moria. So given the longevity of this elite line—this alone would suggest that Durin VII could have played a pivotal role in the Battle of Dale/Erebor during the events of the War of the Ring. Also, given that he is a descendent of Thorin III from the books—it makes sense to incorporate Durin VII as the son of Thorin III. Remember Durin VII proclaims himself Durin reborn in the 4th Age.
5. Durin VII would most likely be called Royal Anar or something, he is alive and is most likely the son of Thorin III and I will post the link here of the picture of his lineage chart:
http://merp.wikia.com/wiki/D%C3%BArin_the_Deathlessplease see the lineage chart to the right.
I think all of this evidences the fact that Durin VII was alive during the time of the War of the Ring, but didn't call himself Durin VII, that is what the One Ring would do. It would make him Durin and allow him to proclaim himself early.