In the absence of any comments from anyone else, it might help others if I add some more on this in the light of further experience and research.
1. Windows 7 Help goes into some detail about Live File System (LFS) and the various versions of UDF that are available. What it doesn't explain is that the Mastered file system in the Windows CD burner is not the same as it was in XP. That was defined by Windows as CDFS, and as far as I can tell, was a version of ISO 9660. However, a CD recorded using the Mastered option in Windows 7 seems to be a hybrid of ISO 9660 (CDFS) and UDF (presumably the default 2.01 version): such CDs are identified by Windows XP and higher as UDF, but a disc burning application which doesn't support UDF 2.01 or higher identifies the file system as ISO 9660. Burning to blank discs in CDFS only appears not to be possible with the Windows 7 burner.
(I have found that some 3rd party burning applications have problems erasing CD-RWs recorded using the Windows 7 Mastered option. I invariably get an application hang if I try this, and I suspect this may be due to an incompatibility with UDF 2.01.)
2. I still don't really know what caused the bad block errors etc. It happened with two separate burnings of the same data on to two discs, which were both relatively new but had been successfully recorded to and erased on 3-4 occasions using 3rd party software in CDFS format. I had also used exactly the same type of disc without problem for at least two years, on an XP machine. Thus I had assumed the errors were caused by the Windows 7 burning process, particularly as it seemed to be recording in the wrong file system.
However, I have since used the Mastered option in the Windows burner to twice record approximately the same data to an identical disc without any errors. So either the Windows 7 burner is inconsistent, or something else was causing the errors on these discs. One possibility may be that we were experiencing exceptionally high humidity (up to about 79%) around the time I was reading them. So I'm still unsure on this, and it's possible that the errors were in the reading rather than the writing.