Thank you! I believe I will follow your advice, and just let the phone rest completely for six months. We purchased an Apple TV (2022) yesterday, so we will never again use an iPhone as a media server.
Does the iPhone 7 with the swollen battery represent any kind of fire risk, when powered down and not in use?
No. The risk of fire comes from puncturing. I had this same concern the last time I had my iPhone 5 replaced (2017). Apparently, there is a sleeve around the battery that expands and contracts with the battery itself. The entire function of the sleeve is to protect the battery from punctures which would cause a fire.
When the battery is removed (to replace it) there is potential that the tools used will puncture the sleeve and that's where the risk comes in. Apple has a special facility just for devices with swollen batteries.
So as long as there's no puncturing of the sleeve/battery you'll be fine.
If it eases your mind though, you could set the phone on top of something that isn't inherently flammable and leave it be in an out of the way place.
I've had a second iPhone 5 sitting in the garage for a while now.