A way to choose a block title's format (HTML tag)
I know you are asking about D7, but you are missing a key point about templates.  I'd take a gander at http://drupal.org/node/104319 which talks in great detail how D6 does it so you can how it can look at different block templates and then think about whether you need to create a module that has a configuration page for its blocks like what you have above or whether block location is enough.