Smarty "break" isn't around until v3 so that won't work. Try this (added if condition):
PHP Code:
...
{foreach from=$membership_levels item=v}
{if $v.membershipid ne 7}
<option value="{$v.membershipid}"{if $userinfo.pending_membershipid eq $v.membershipid} selected="selected"{/if}>{$v.membership}</option>
{/if}
{/foreach}