Jeff, you're supposed to be able to pull the clutch in and crank the engine even when the trans is in gear. In the bad ol' days you could do that even without disengaging the clutch, which wasn't exactly a safe thing to do. So a clutch interlock switch was added for 2007 that is tripped when you operate the clutch lever. If the ECM gets a signal from the neutral switch showing the trans is in neutral, it will allow the starter to operate. If the neutral switch shows the bike is in gear, the ECM looks at the clutch lever switch to see if the clutch has been disengaged. If it has, the ECM will allow the starter to run. If it hasn't, the starter will not operate.
Seems pretty simple, but obviously in this case there is something wrong other than the clutch switch. Time to first make sure the lever is actually closing the switch (don't assume, make sure the lever is actually pressing the end of the switch). The reason I say that is based on issues others have reported when they changed clutch levers. Many levers are not made to work with these switches. If that is OK, then you need to go to the correct terminals in the connector for the ECM and check continuity with the clutch disengaged, and then with the lever released. If you get the same result no matter if the lever is released or pulled in, start tracing the circuit from one end to the other.
Btw, are you running the stock ECM, and if so do you have anything like a Power Commander plugged into the ECM connection? Aftermarket ECM's, or piggyback devices like a PC, can cause problems like this.
Jerry