Don't be confused. Virginia just sent out 1099 G forms. These forms mention an overpayment from 2007. This is not a notice of money being paid to you rather a notice that you already received this amount in 2007.

Typically the Virginia refund is reported as income on your Federal tax return in following year. The reason for this is that you used state tax withholdings and state estimated tax paid as an itemized deduction on your Federal tax return, Schedule A. Using this amount as a deduction reduced your taxable income. As a result of using this as a tax benefit it becomes taxable in the following year.

It is only taxable if you itemized in the prior year.
 
It is not taxable income on the Virginia return.