Andy,
There are quite a few types of collet which can be used on a Myford S7 (see articles in past MEW magazines) but the two you mention are the most common. The Myford 2MT collets which mount in the headstock taper are excellent in quality and give the lowest (i.e. best) runout, and the lowest possible overhang, hence the highest rigidity. However, there are disadvantages: (1) they only work on material or tools of the exact diameter they are made for; (2) because of the fine taper, the position of the material depends on how hard you tighten the retaining ring; (3) they are b****y expensive, and (4) since the demise of the old Myford, availability is in doubt. They sell on eBay at around the new price. You need to get the closing ring and laoding tube to be able to use them.
The best type of chuck-mounted collets for the use you intend are ER collets. They are designed to hold a small range of sizes, and a full set of them will hold anything (round!) within the upper and lower limits. The ER25 set covers 0.5 mm to 16 mm, which is everything you could reasonably expect to use on a S7. Provided you use the correct tightening spanner and do it up properly, they will hold milling cutters perfectly well; I have used them on my milling machine for years, and only had a cutter pull out once when I got careless with tightening. There are several varieties of chuck for these collets: a 2MT type (which *definitely* requires a drawbar); a backplate mounting type (which can, done correctly, get the best accuracy on your lathe, but you have to fit it yourself, perhaps not the job for a beginner) and the direct mounting type which screws directly to the madrel nose thread. The latter is probably the one you should go for, not quite as accurate in runout as a well-done backplate mounted one, but perfectly good for milling cuttters.
Hope this helps,
David