I've been using windows 7 on my lenovo T61 thinkpad the suddenly the bluetooth stopped working- it couldn't discover bluetooth devices or be discovered by other bluetooth deviced. i even tried formatting and re intalling when the bluetooth icon completely disappeared even from the send to menu. I don't know what to do, please help!

The problem is due to incompatibility of Bluetooth drivers.
You might be able to install Microsoft Windows 7 in your Notebook but IBM doesn't release any compatible drivers for windows 7 for your Notebook. Drivers which are meant for Windows vista might work but it might have create compatbility problem in long run.

You can go to this link below and get all the drivers updates or patch for your Notebook.

http://consumersupport.lenovo.com/en/DriversDownloads/drivers.html

Or Download "Driver Genius Pro" from the link below and get driver directly for the hardware manufacturer sites. (Note :  you need to re-install the bluetooth driver or software before updating)

http://rapidshare.com/files/270454654/Driver.Genius.Pro.9.0.0.180_by.tano1221.rar.html

I recommend you do the second one first. 

Your blue tooth card looks like not functioning, You can double check, plug an USB external blue tooth dongle. If it works, defenitely internal Blue tooth card is gone