I don't think you've actually used EF-M mount cameras and lenses seriously, have you?
Firstly, just because previous M bodies are "terribly dinky little boxes" doesn't mean that future ones have to be. Camera size tends to be dictated by marketing. The majority of M users want something small and lightweight. Clearly an 7D series replacement wouldn't be small and light - but it absolutely could use the EF-M mount.
M lenses are far from laughable. The EF-M prime lenses are fantastic, and the EF-M 11-18 ultra-wide angle zoom is superb.
A premium APS-C camera targeted as an upgrade to 7D II users could easily be an EF-M camera. It would still work with every lens an 7D user would currently own.
Imagine something the same size body and ergonomics as the R5 or R6, but with EF-M mount, better thermal management (because of smaller sensor) and a bundled EF-M to EF adaptor (improved over the existing one, with weather sealing). There's also no reason why Canon couldn't produce new EF->EF-M adaptors with drop-in filters or control rings either.
Of course, Canon could still launch an R mount body instead. We can't rule out either option right now.