I want upgrade my existing django1.4 site to django1.7(Most possible latest version)
Do all the existing packages working in 1.4 will work 1.7?
I want know the compatibility of the popular modules like, grappelli, south, django-filebrowser, pillow and some third party email sending service.
Is it advisable to go with django1.7 or I need limit my upgrade to 1.6?
You can't assume that a package that works with one version of a program will necessarily work with another. That is true in general, and particularly in this case because (as of this writing) Django 1.7 hasn't been released yet.
South definitely will not work, as documented on the website. That's because 1.7 includes a native migrations feature. You will have to switch to using Django migrations.
Django-grappelli's documentation explicitly says: "Grappelli is always developed against the latest stable Django release and is NOT tested with Django's trunk." For example, here's a bug that affects 1.7. The fix is on the development branch, but you won't get it with a regular pip install.
That said, it might well make sense to go ahead and upgrade to 1.7RC3 now (or, even better, wait just a bit for the official release to come out). The sooner you adopt the more work you might have to do (e.g. tracking down unreleased branches of other apps), but the advantage is that you can get up-to-date now instead of waiting until your next upgrade opportunity.