Vienna, (aka "Windows 7") is a code name. It is was Vista was suppose to be. It is built on the Code name "blackcomb" that Microsoft was working on a few years ago though (which branched out into Longhorn, which became Vista).
Yes, it will be an operating system. Microsoft says that it will be our in 2009, but my guess is that it will come out a bit later, after the delay of Vista. I imagine the beta testing will start in like late 2008 to 2009.