As long as it's not overdone, it works. Depends on setting. (I'm looking at YOU forgotten realms! and your 80 50th level characters roaming around doing nothing while the world ends and the lvl 1 heroes need to step up).

If you have the same group of players, with the same under-equipped Level 7 PCs about to embark on an adventure that's sure to get them killed ...

I'd mea culpa. Seriously. Be honest with your players & let them know that you messed up with the treasure distribution. Retcon some in-game reason for them to suddenly have equipment (the afore-mentioned rich patron, for example) and send them on their way with a sincere promise to keep a closer eye on the treasure bundles going forward.

Once that's done, plan your treasure placement. Ask your players for a wish list of items they'd like to have (mind you, don't give them all they want) and decide where in the adventure makes sense to place those sorts of things. If they party misses an entire wing of the Evil Lair because they didn't bother the check behind the tapestry for the concealed door, don't stress. Simply move the loot to some other place a game session or two down the road.

The "gems in the critter belly" idea is close to the mark for monsters who wouldn't normally carry treasure ... but put the loot in and around the critter's lair instead.

Bear in mind as well that not every encounter should yield usable treasure. If the party is trekking through a swamp, monster encounters without treasure are fine. Swamp-dwelling critters don't typically carry treasure, corpses are generally under three feet of water, and everyone knows the forbidden temple of the yuan-ti is where all the action is, anyway.

I have a tendency to not give my players much loot at all...I think too much loot kind of lends to the pure dungeon-delver element sometimes...which is not my play-style at all. I like making my PC's work for their loot. Last campaign I rolled, the Warforged hung around two large adamantine-layered steel doors while the rest of the party slept near by. He worked on those doors all night with a crowbar, and as a way of saying "good job, you're resourceful" I allowed him to harvest about six hundred gold pieces worth of adamantine shavings and chunks.

It's subtle things like that which can motivate the group as a whole to scavenge their way to the top. However...if I ever feel that my party is lagging behind in loot to the point where they are losing battles because of their clumsy equipment, I enjoy rewarding them with secret caches. If you have a curious rogue or, even better, an elf in the party, you can have a secret room or compartment in a mundane location magically appear for the PC's to raid. Even better is using the "treacherous villain/antihero" to deliver high quality goods to your group. Using a "kicking down the door" approach, have an arch nemesis or rival approach the group in a shadowy scenario. Perhaps on the streets outside of the tavern in the mid-morning mist. Ensue combat and have the villain ridiculously overpowered so there's no chance he/she can die at that time...but you're the DM, so you ultimately control that anyway. Have the villain toy with the party, then after leaving the group embarrassed and bruised, have the villain leave, and on his/her way out, have them drop something of value. Perhaps a weapon that was broken during the fight, or the accidental drop of a rod, scroll case, or potion belt. It's a good way to excite the players and get them interested in the game while still handing out some goodies.