Hey, there.  I own two Variax 700 electrics and use them almost exclusively now.  "Blue" is serial number 00000001 (that's right, ONE), and "Red" was made a few years later.  Very minor differences between them. Mostly, these are really great, playable guitars.  Here's some of my experience, for what it's worth (thank you, Mssr. Stills):

TREMELO:

Regarding the setscrew for the tremelo arm, I've noticed from these forums that many users have experienced loss of the setscrew, which then causes a very loosely hanging whammy bar.  I talked w/ Line6 support but they don't stock parts like this.

You can order a set of 20 setscrews from fastener-express.com (include the dash in their address) for less than $10 including shipping.  These are M3x0.5x3mm set screws with cup points.  Their part number is 32098.  These buggers are VERY small, but if you can manage to wrap just a tiny bit of Teflon plumber's tape around the threads, they should stay put for you.

Regarding use of the whammy bar on 700's:  I do very little dive-bombing, more of the Gilmour-type of note-wavering.  I went to my local guitar shop, bought ONE extra spring for the tremelo and installed it.  When you go from 3 to 4 springs, the positions of the springs need to be changed from 1-3-5 to 1-2-4-5 to keep it balanced.  It makes the whammy-bar more firm, but even with HEAVY bending, the 700 has stayed in almost perfect tune.  I couldn't be more pleased with that.

MODEL-SELECT KNOB:

There's a fairly rare problem with the model-select knob, and the solution is simple & free.  You may notice the 700 doesn't change from one model to another sometimes when you rotate the knob one click ... or, maybe you rotate it several clicks and the modeling is one position off from the knob indication.  I had presumed the potentiometer had gone bad and lived with this problem for several weeks until receiving and swapping out a new pot.  Turns out, that's not the root-cause.  See my document in the Variax Guitars documents:  

IMPROVED VARIAX 500/700 MODEL-SELECT KNOB CALIBRATION in Variax Guitars

If you acquire a 700 electric, I think you'll love it!