The typical 64-bit processor is a 64-bit processor. The "extension of a 32-bit processor" simply means they're 64-bit processors with full backwards compatibility. That may not be the same thing as the new ones you're talking about, Silencer, but you get the point.
Your average programs doesn't get to talk directly to the processor, it has to go through the operating system. That means 32-bit programs have to deal with the 64-bit OS, or more accurately, the 64-bit OS has to accommodate for 32-bit programs (or no one will use it!).
Microsoft put some work into this matter, and so 64-bit Windows comes with 32-bit versions of a fair chunk of it's code. However, not everything is covered (the DOS VM for starters - 64-bit Windows comes with no 16-bit support at all!), and stability between code bases still seems to lean in favour of 32-bit at the moment. That will change, and things are a lot better then they were (certainly acceptable for many users), but that's how it is now.
Longhorn was the initial codename for Vista, just as Chicago became Windows '95. I'd be interested to know where you picked up the idea that it was cancelled, as you're not the first person I've heard that from
Windows 7 is a heavily modified version of Vista, rushed out the door because Vista was failing badly
. Larger businesses, who would normally be bulk-purchasing new licenses, were sticking with their XP rigs and purchasing new
XP machines when they needed new computers.
I suspect the name "Windows 7" is a joke poking fun at this. Vista is version 6.0, but 7 is internally marked as version 6.1! However, the entire point of 7 was so Microsoft could distance themselves from the image Vista was giving them, so I'd assume that's where the name comes from; to make it seem further "away" then it really was. This is just conjecture on my part; but it's obvious 7 isn't the seventh release of Windows (there's tons of them out there!), so...
Rush job though it was, 7 really is a great improvement over Vista. I just don't see it as an overall improvement over XP.
Things like "XP mode" are a nice gesture (even if MS isn't offering it to the average OEM user, see my rant earlier in the thread), but they don't beat the performance of an actual physical computer running the older operating system.