I'd like to offer my experience which closely matched those here.
I bought a Nook Color ("Blue Dot" sticker on the carton) and tried to put CM7 on the emmc using CWM booted from the uSD card. It was not stable. I reverted to stock 1.0.1, which updated shortly to 1.2. This was a couple weeks ago before 1.3 was deployed.
I rooted the 1.2 with something (I've played a bunch with this thing...) and it resembled some hybrid cross between B&N Nook and android froyo(?) and retained the firmware identifier of 1.2. This worked OK, but this was the girlfriend's and she was happy. But it wasn't what I envisioned when I first bought it with the intentions of getting it converted to and Android tablet. The 1.3 auto updated and broke a bunch of market apps and ruined functionality.
I proceeded to revert back to 1.0.1, with the intention to auto update to 1.2, then root and install some other ROM, i.e.CM7. The Nook Color was stuck on 1.0.1 and would not auto update. 1.4 was the current software on B&N site. I had stock 1.3 but could not install because the Nook was not recognized by my XP machines, just as described on this thread. I waited 36 hours without any updates taking, even though all connections were OK, I deregistered and reregistered, to no avail.
I finally methodically proceeded to install CM7 with the following sequence from a fresh new 1.0.1 restore. Remember, this is a "Blue Dot" Nook Color.
1. Prepared a CWM uSD 2GB Kingston using 1gb_clockwork-3.2.0.1-eyeballer, burned with Win32DiskImager. Check-sum (md5) these files to ensure all files are accurately downloaded.
2. Placed Cyanogenmod 7 (update-cm-7.1.0-encore-signed.zip) and google apps (gapps-gb-20110828-signed.zip) on the card. Booted into CWM off the uSD card.
3. Formatted system, data, then cache.
4. Installed CM7 zip file, then the google apps zip file.
I think there are some hit and miss results when doing this process. For me, it was essential to use the files I used, formatting the items and having a fresh 1.0.1 Nook. Everything went essentially as shown in this video, even though he used slightly different file versions;
How to Install CyanogenMod 7 on the Nook Color (PC Version) - YouTube
My results were a CM7 full Android tablet without any hint of Nook Color. Software version showed as 2.3.7 or 2.3.5 (sorry, recalling version from memory...). I have to stop playing with it so it can be used for the intended purpose of a tablet. I just ordered a $129 refurb from ebay B&N to continue the root tinkering and will try to report if this sequence was repeatable.