How do I simplify $\frac{\log_7 32}{\log_7 8\cdot\sqrt2}$? So far I have got $\log_7 2^5 - \log_7 2^3 + \log_7 2^{1/2}$ and am unable to proceed. Am I, on the right track so far? and how do I proceed? thank you!

Your expansion is not correct.  If $b, x, y > 0$, with $b \neq 1$, then 
\begin{align*}
\log_b (xy) & = \log_b x + \log_b y\\
\log_b \left(\frac{x}{y}\right) & = \log_b x - \log_b y
\end{align*}
However, you have 
$$\frac{\log_7 32}{\log_7 8\sqrt{2}}$$
which is a quotient of logarithms, not the logarithm of a quotient, so you cannot apply those rules here.
However, your observations that $32 = 2^5$, $8 = 2^{3}$, and $\sqrt{2} = 2^{1/2}$ would be useful if we were working with logarithms to the base $2$.  To do so, we use the Change of Base Formula.  Let $a, b, x > 0$, with $a, b \neq 1$.  Then 
$$\log_a x = \frac{\log_b x}{\log_b a}$$
By setting $a = 7$ and $b = 2$, we obtain
\begin{align*}
\frac{\log_7 32}{\log_7 8\sqrt{2}} & = \frac{\dfrac{\log_2 32}{\log_2 7}}{\dfrac{\log_2 8\sqrt{2}}{\log_2 7}}\\
   & = \frac{\log_2 32}{\log_2 8\sqrt{2}}\\
   & = \frac{\log_2 2^5}{\log_2 2^32^{1/2}}\\
   & = \frac{5}{\log_2 2^{7/2}}\\
   & = \frac{5}{\frac{7}{2}}\\
   & = \frac{10}{7}
\end{align*}
