Does a 4.1 surround sound setup work with a 7.1 receiver?

it should work and work well. this is assuming that the receiver is not ancient. when a signal is going out to a speaker, there's a little bit of electrical push back to the receiver, if there's no push back, there's probably no speaker, so the receiver should be able to determine which sounds should go to which speaker. most of your dialog and talk should come out of your front speakers because you have no center channel. if not you'll have to adjust the receiver, if no adjustment you'll have to buy a center channel speaker.

have fun...

Maybe your old setup is just under stereo mode which makes your speakers produce loud noises but not filtered. Nowadays, with the advent of say Dolby / THX, the loudness that you have been missing is very much filtered by how the distribution of your 7.1 setup home theater. Do not worry about this, I am sure that before you made the shift to your new home theater, you can't distinguish a bullet case falling on the floor (if for example you are watching Rambo letting all out). With your 7.1 setup, you can even have a distinct insight on what part of the floor the bullet case fell off. Enjoy your 7.1 setup.