Yes, the space does need to be contiguous to merge. You will need to move a few things around, and do it in stages. I wouldn't try to do it all at once, since some steps may take a bit of time.

You will need to do it using a live CD or live USB, as you can't mess with a mounted partition.

I recommend first creating a swap drive at the end of the disk. Then, highlight the old swap drive, choose swap off, unmount that partition, and delete it.

You can move the Ubuntu partition over into the unallocated space, then merge the space before Ubuntu with Windows, and merge the space after Ubuntu with Ubuntu.

You might also consider leaving them as is, creating a data partition using NTFS, then pointing both windows and Ubuntu to this partition for Documents, pictures, music, etc. Windows 7 has a way to change the location for these directories, and you can create symbolic links in Ubuntu to point to the same place. This makes it much easier to share data with both systems, and never duplicate data.