I am working in the US - Connecticut state, since 8/4/2007 on an L-1 visa. Am I eligible to claim my wife and child as dependents on my returns for the year 2007, even though I have a non-resident status here (based on the India-US tax benefits treaty).

You have work visa. There is no treaty benefit for L1 visa.

Choice 1: File as nonresident. You will only get your own personal exemption and moving expenses for the family.
Choice 2: Wait till you complete SPT in 2008. The file your 2007 tax return as residents Married Filing Jointly. Claim you child also. Attach W7 for your wife and child with your tax return.

Thanks a lot for your quick response. Could you please elaborate a little more on waiting until SPT completion and then filing the returns for 2007. Does that mean that I would have to file for an extension?