This is the area that will need the most thought, investigation and research I feel.
7 distinct note positions, with the areas in between still selectable, all in one smooth and easy to use mechanism.
My first thought was to somehow fabricate a >50cm slide potentiometer to mount in the frame.
Second idea would be to use 7 standard slide potentiometers all in a line, and create a mechanism for the bar moved by the player to move the slide pot as it passes.
If pot 1 is reading 0 we know the slide is in position 1 and would sound note one on that pitch; any other reading would indicate a pitch bend down in that note (as the slide has been moved out). Once pot 1 hits 1023 we know that the slide has reached position 2 and can start reading pot 2 for the pitch bend value, and so on and so forth.
This second way would take a lot of refinement to get a smooth output from the Arduino but having the range of 7 full potentiometers (compared to the one pot idea) would give a far greater degree of accuracy.