If the application for US 7,156,537 B2 was rejected on two occasions during examination and two claims were canceled from the patent, then why is the figure associated with the canceled claims still in the published patent and are they considered prior art?
Everything in the published patent along with everything in the publicly available file history associated with the application is considered prior art.
Documents are eligible for use as prior art as of the date they are publicly available. In this case, all versions of the application, even canceled claims (and even if some parts of the specification and/or drawings were canceled) could still be prior art because they remain part of the public record.
Regarding the claims and related description, everything in the claims must be within the scope of the application specification and/or drawings. However, everything in the specification and/or drawings does not need to be within the scope of the claims. In other words, there can be (and typically there is) lots of subject matter described in the specification and/or drawings that is not covered by the claims.