I'm pretty sure your 7.0.3 clients can talk to a 7.0.5 server without any problems, though obviously there are advantages to getting them upgraded (peformance, bug fixes etc).
Does the 'failed to communicate with the SEE server' message appear with the SEE login attempt or are those seperate points? If the same, you obviously have a policy that stops them logging on after a set interval of not being able to communicate with the server... can you check?
Then there is obviously a problem communicating - does it happen to all clients? When you load the client program in Windows and click 'Check-in' what happens? If just a few clients can't communicate check the connectivity, firewalls etc. If all of them can't, it's more likely a web service or authentication problem (try browsing it in IIS).
Finally, there are several options for doing the upgrade (see the documantation) but I'd suggest figuring out the other issues first...!