That should indicate that the modem is registered (or, at least, that it thinks it is registered);
if it were in the WIND: 7 “stuck” state, the LED would be steady.
Indeed - the modem thinks that it is registered…
… but the network thinks that it is not registered!
If you enable delivery receipts, does the network think that the SMS has been delivered?
I mean, can you reconnect to GPRS once this has happened?
If so, does reconnecting to GPRS also restore the GSM registration?