I am hacking together a bot, and I am using 2 continuous rotation servos. I have lipoly 7.4v battery packs. 7.4 volts is too high to power the servos directly according to my research, so I am wondering if I can safely power the two servos with the 5v from arduino's voltage regulator. Does the regulator have enough capacity for the servos?
It's a little risky. Some servos might never draw enough current to damage the chip, but two servos under load would probably do damage - but I'm guessing without the motor specs and the load.
Safety first - drive them with transistors or an H-bridge. I hacked a pair of servos, then put L293 boards in them (very little boards). Now they are bidirectional, and I can run both of them off 6V easily. You can find lots of H-bridge circuits on the web, and you can listen in on the "motor party" thread in the Hardware/Development forum to hear more than you want to know about the subject of driving servos with Arduino!
I don't think something like an H bridge is necessary. The arduino pins will be controlling the servo speed with low current pulses, so no problem there. However the total current drain on the 5v regulator could be higher than it can handle but the regulator should shut down without damage if the current is more than it can handle. Try it while checking if the regulator gets too hot to comfortably hold your finger on it. If it does or the servos and/or Arduino are running erratically then you need an external 5v regulator for the servos.
The need for an external regulator really depends on which regulator is fitted to your board and the current drain of the servos.
There are a few varieties of Arduino boards and a few suppliers that make them. I don't recognize those numbers so can't comment on the current capacity of your onboard regulator. But if you have an external 7805 that should be fine for powering two typical hobby servos. The 7805 will shut down if it is overdriven so you shouldn't fry it if you wire it up correctly.
What is the make and model of the servos, I may have some data on the current requirements.