Ok, now I'm really confused. I did a factory reset through the settings and it still does not connect! I then tried doing it again but through the bootloader, still nothing! I don't understand, shouldn't resetting it bring it back to normal? if not then is it a hardware issue rather than a software issue?
The weird thing with my Nexus 10 is that the Acer ADB re-installs every time I plug my tablet into my computer.
The following steps might different depending on your version of Windows and what driver your PC loaded for your device. But idea is to uninstall the driver your PC is using and disconnect your Nexus 7 and reconnect.
Go into Devices and Printers on your windows PC >>> Right click your Nexus 7 >>> Properties >>> Hardware >>> Properties >>> Change settings >>> Driver >>> Uninstall. >>>>> Done >>>> Then unplug Nexus 7 and replug and Windows should load the correct driver and Nexus 7 should be recognized.
Would you happen to know if any Acer drivers are installed on your computer? Here recently there was a Windows Update that installed the wrong driver and made it so that I had the exact same problems as you're having. Here's how I fixed it.
Go To> Control Panel>Hardware and Devices>Device Manager. In Device manager look for something along the lines of "ACER Composite ADB Interface", at least in my case I had the wrong ADB interface installed. You'll know if you have the wrong drivers if you go to Devices and Printers and right click your Nexus 7 and go to it's properties. It should be under the hardware tab where it lists it. If it doesn't just say Nexus 7 then follow these instructions. Once you find it in the Device Manager (once again in my case it was the ACER Composite ADB Interface causing the issue) right click and and uninstall it. There should be a dialogue box that pops up right after which will ask you if you want to delete the drivers. Check this box and proceed with the uninstall. After successfully uninstalling the drivers plug in or unlplug and plug back in your Nexus 7. It should show up now with the correct drivers installed.