A. No. But you DO need a 100% Intel pentium compatible chip - which rules out some Cyrix and IBM processors. Microsoft have used an intel pentium instruction that some of these non-Intel processors do not support. There is NO way around this.
The actual speed of the processor doesn't matter as long as it runs the full pentium instruction set - it needs to support CMPXCHG8B (Compare and Exchange 8 bytes) and RDTSC (Read Time-Stamp counter) instructions. Microsoft have made this a requirement because it is the minimum spec machine that they have developed/tested with - which is ok if you get most of your equipment donated/loaned/replaced by hardware companies free of charge, but this isn't the case with most businesses!
As long as the server previously ran SQL 6.5 (and is 100% intel compatible) you should find that it will run SQL 7.0 and will offer significant performance improvements, so don't upgrade hardware for the sake of it.
The following quote is from Microsoft Product Support Services :-
"When using SQL Server v7.0, Microsoft recommends a processor speed of 166Mhz or higher for server machines. Our extensive testing of the product has been done on machines of this calibre and we believe customers will get a better price performance with the product when used in this configuration. Microsoft will support SQL Server v7.0 when run on server machines with slower processors. However customers should recognise that if our findings are that major problems can be eliminated by using faster processors we will continue to recommend, and in some cases may require, compliance with this suggestion."
The reason for this caveat is that some of the decisions the optimiser makes on a 166Mhz pentium may not make so much sense on a 60Mhz pentium - i.e. the extra cpu time a 60Mhz part neeed may mean that a non-optimal plan had been chosen.