With EE 2.7 can you use a channel form on the front end to create new categories? Can't quite figure this out.
You cannot add categories though the channel form, unfortunately. You've got a couple options:
1) It'd be a bit involved, but it's not altogether impossible to write a module that allows categories to be added from the front-end. Just take note of the various tables for categories and what needs to be filled out when added. If you're not familiar with add-on development already, though, this may be a bit challenging.
2) Switch to a tagging addon, such as the free Tagger from DevDemon. Tagger provides an interface that works with the channel form on the front-end. While tagging isn't exactly the same functionality as categories, in many cases it's pretty seamless to switch over.