The chip will not be damaged. You just can't download to it while it is an endless loop of WDT resets. cycling power clears the WDT enable bit and you have a few seconds to start a download from the Arduino IDE.
Cycling power seems to be the only reliable way to end the reset loop. The reset button doesn't seem to clear WDE.
This will not happen if you have a bootloader built with WATCHDOG_MODS defined.
Here is info about burning a new bootloader http://www.arduino.cc/en/Hacking/Bootloader
I use the Adafruit USBtinyISP to burn bootloaders. I do it on an old XP 32-bit system.
I am not sure of the current Windows 7 64-bit driver situation. Driver signing is a big problem for lots of open source software for USB devices.
You may be able to burn the bootloader in you mega using another Arduino http://arduino.cc/en/Tutorial/ArduinoISP
. I have not tried it but it may be a solution to the Windows 7 64-bit driver problem. You will need to use the correct SPI pins for the mega, not the ones shown for a 168/328.