Assuming that the ARM7TDMI is in Thumb mode when an interrupt occurs, is the LSB of r14_irq = 1 once the ISR is entered?
No.
Mostly because an exception return is a very different thing from a branch - it doesn't interwork to Thumb state in the same way as a branch does, because it's replacing the entire execution state anyway by virtue of restoring the SPSR. Specifically, the instruction set state of the interrupted context is encoded in the SPSR.T bit.