So here are the steps to develop a basic version of Windows 7 gadget.
1. Locate a folder “%USERPROFILE%\AppData\Local\Microsoft\Windows Sidebar\Gadgets” in Windows Explorer (You can also locate using Run dialog, just enter above text in Run Dialog and press enter).
2. Create a folder “MyShell.gadget” (Note you can name this folder anything).
3. Create a manifest file “gadget.xml” inside the folder you just created now. This is the file which gives metadata about your gadget to Windows 7.
4. Add the following text to “gadget.xml” file.
MyShell 220.127.116.11 Full
5. Create new file “MyShell.html” in same folder And then add the code of your choice. You can include scripts from remote location or you can create your own. I just used JQuery and its RSS plug-in to create a simple RSS gadget. Refer following code.
6. That is all you need to do. Now save all the files and Right click on desktop and choose “Gadgets”. You should see your gadget in the list.
Here is the preview of My Gadget.