Sorry for not replying to your post sooner, but didn't get an email notification for some reason.
I would be surprised if it is necessary to pull out your layers from the group layer and put them back to get it to work. It is true that you do have to embed the layer script on every layer including all child layers, so perhaps that was the real problem. Here are some other fixes to common problems that people have had in the past:
1. Bring up the MorphDials options window and make sure the options have sensible values:

2. Make sure the script rt_apply_morph_weights.lua is in the same folder as your anme file and is embedded in the layer you want to be controlled by the MorphDials layer, which should be a sibling layer to it, be below it in the layer order, and have the name MorphDials.
3. Make sure the button tools have been installed as buttons in the _tool_list.txt file.
4. Make sure you are not on frame 0 when manipulating the MorphDials.
Note that the crashing could be due to names in the ctrl bone not tet matching any of the target bones. Sometimes, I disable realtime morph blending, using the options window, while I am naming bones to avoid it crashing.
You are right that you won't be able to render it with AS7 without baking first. Also, I'm not sure if I would recommend waiting until AS9 to upgrade as it looks like Smith Micro are putting more effort into point releases this time around, so I would say it's unlikely that AS9 will be released in June of next year as has been the pattern in the past.