If I didn't file my taxes last year and I get a return this year will the IRS just deduct what I owed from last year?

No. You need to properly file for both years.

Agreed. File 2006 first, then 2007.

If what you had withheld from your wages last year wasn't sufficient to satisfy your tax obligation, then yes, they will.

If you do NOT file, eventually the IRS will file FOR you, at the WORST possible filing status.

If you file the 2007 return before the 2006, the IRS will HOLD your refudn until the 2006 return IS filed.