IMO it didn't really matter that they were teammates. Levi was the team leader. He had a good track record in the Tour (I would consider multiple top-10 finishes a good track record) while Contador was unproven in GTs at the time. If I recall correctly (my memory and perception of the 07 Tour might be a bit vague I didn't get any commentary on the 07 Tour because I only got feeds in Irish), it wasn't so much of Levi not chasing a teammate, but that he couldn't keep up with the pace when you have two exposive climbers. He, like Cadel, simply didn't have the kick to stay with the Chicken while Contador did.
IMO the situation was almost reversed at the 09 Vuelta. I think Levi might have had a chance of winning if he wasn't on Contador's team. Contador was the designated team leader (as shown by Contador's complaining of Levi placing too close for comfort). That being said, I don't think Levi would have won that one because of the same reasons already stated: he lacks a kick and he doesn't have the "it" factor (aka rides like a pu$$y)