While it's true that East 7th street is pretty absent of commercial spaces and density soon after Arcade, the Hudson road choice limits its potential development to only the north side of the line. To the south is the highway, and houses or businesses on the other side are just too far to benefit much. It's like a knight on the edge of a chess board rather than in the center.
The Hudson Rd routing is mitigable, however. One of the proposed stations (Earl St) sits right at an overpass over I-94. Two others (White Bear Ave and Sun Ray) could easily include bike/ped bridges over I-94 to connect to the south side.
The problem with East 7th isn't just the lack of commercial nodes. Much of the street (plus three blocks of White Bear Ave) simply lack the right-of-way width. It's a similar situation to Penn Ave with the Bottineau Line...where there isn't enough existing right-of-way to run LRT, 1 lane in each direction, plus have room for sidewalks and stations.
At an absolute minimum, you need 46ft curb-to-curb to fit 1 travel lane each way plus the LRT...of note: Norfolk, VA's line is roughly 48ft for this, while the Green Line equivalent is 51ft. Including space for a station similar to the Green Line (single-directon on one side), you'd need 61ft. For a bi-directional in-the-median station (similar to a few along Norfolk's line) requires 65ft. Including space for a station AND a left turn lane (again similar to the Green Line) requires 72ft. These are just curb-to-curb widths...they do not include sidewalks or boulevards/planters.
There are several blocks of East 7th (especially near Johnson Pkwy), plus the first 3 blocks of White Bear Ave to the south of East 7th, where the entire right-of-way (sidewalk edge to sidewalk edge) is 60ft or less. Most of East 7th between Johnson Pkwy and White Bear Ave is a little better....66ft ROW. But you still wouldn't have room for stations without buying additional right-of-way and likely tearing down some buildings.
It's a similar issue to when Penn Ave was considered for the Bottineau line...there just isn't enough right-of-way width. The options there basically because converting Penn Ave to one-way operation or buying out one side of the street. I don't think either of those options are viable for East 7th. And they definitely won't work for White Bear Ave, which sees volumes higher than most of University Ave.
I understand that Metro State is a big place to miss, but how about a Rush LRT leaving the Green Line and following Kittson and running parallel west of the freight line, under Lafayette, and then bridging over to meet Phalen Blvd. This would not require any tunneling. Or maybe take advantage of the empty Rivoli area before meeting up with Phalen Blvd again. They intend to build a lot of new houses there, but it would be advantageous to them to make it true TOD.
Might be doable, though it would require either one really long bridge or two bridges between Lafayette and Phalen in order to clear the freight rail lines converging in the area. And fitting a station under East 7th might be tricky. But IMO it doesn't have nearly the draw that a line hitting both Metro State and East 7th/Arcade would have. A direct station at Metro State would easily induce conversion of almost an entire city block currently dedicated to parking (bounded by 6th, 7th, Maria, and Bates).