What seems to have happened is that the Windows bootloader on the internal hard disk has been replaced with the Linux GRUB bootloader. In a dual-boot setup, the GRUB bootloader is the one that initially performs the boot, and the person selects Windows or Linux from that, and from there it will either chain-load the Windows bootloader (meaning that one bootloader, GRUB, calls another bootloader directly, and that’s the one from Windows) or continue with the Linux boot.
GRUB was installed on the external hard drive as part of Linux (it doesn’t show the menu if there is only one OS to choose, but it’s still there, doing its thing, behind the scene), but for some reason the update put GRUB on the main hard disk instead. When you turn the PC on, it begins to boot from the internal hard drive, but that points to the /boot folder in the Linux installation on the external drive, which is where the GRUB files are located. If you select Windows, that points it back to the internal hard drive.
I’m assuming that the PC in question is using a MBR setup on the internal disk, performing a legacy boot, as that is the typical setup in Windows 7. If it’s actually UEFI, it should be sufficient to go into the settings and select Windows boot manager from the list of bootloaders on the disk… easy peasy! It’s probably not this way, though.
To restore the original mode of operation, you will (as you mentioned) need to restore the Windows bootloader to the internal hard drive. My go-to tool for this is to use the Macrium Reflect rescue media (USB or disc) and use the option “Fix Windows boot issues.” It’s able to fix things that the built-in Windows repair can’t.
Reflect has a free version, so what I would do if this were my PC would be to boot Windows through GRUB, download and install Reflect (if you already have it installed, great!), then use that to create a rescue USB flash drive or optical disc. If you boot from that and use the aforementioned option, Windows should once again work as expected.
You could also try the Windows boot repair function. To do that, boot to the GRUB menu as you described, then be ready to press F8 (finger poised over the key). Select Windows in the boot menu, press enter, and then immediately press F8 (I usually just hit it a bunch of times to make sure). Windows 7 should have the function of F8 still intact without having to enable it first (unlike 8.x or 10), so that should present the Microsoft boot menu. From there, you should be able to follow the prompts to attempt to repair the boot function.
In my experience, the MS boot fixer failed more often than it worked, which is why I began suggesting the Reflect media instead. Reflect’s boot fixer is very good, and it works the way that I think the MS one should.
