The large bright orange sign over the newly opened Church's Fried Chicken restaurant on Seventh Street NW seems out of place amidst the dreary boarded storefronts that line the busy throroughfare.

Church's, which opened May 7, is the first major private business to locate along the Seventh Street riot corridor since the fires of April l968 turned the blocks between Florida and New York Avenue from a popular neighborhood shopping area to a group of charred vacant buildings.

That left a neighborhood with many potential customers who had few services within walking distance.

"We were excited about the number of people in the area and the grocery stores, and schools and the fact that it was an area of heavy traffic," said Frank Cox, a Church's spokesman. "The store is doing very well and has lived up to our expectations."

The carryout, one of Church's 20 locations in the Washington area, has not generated whole-hearted community support.

"I don't want to give a blanket indictment, but we don't need another fast-food store," said Ibrahim Mumin, exeuctive director of the Shaw Project Area Committee, a community organization, funded primarily by the city government.

"We need a decent movie theater, a hardware store, or a bowling alley," he said. "A neighborhood is much more than that and this area will not be well served by gaining 10 more liquor stores or fast-food shops." City officials had hoped that the opening of the heavily subsidized O Street market project with its Giant Food store four years ago would lure private developers to the area. The O Street market project is in the next block from Church's.

The businesses have not come. But, beginning in about l975, the Victorian homes that line the nearby blocks started attracting black and white professional people interested in renovating them to their former turn-of-the-century elegance.

Other blocks along Seventh Street that were devastated in the riots are now the addresses of more than a thousand units of federally subsidized housing.

The new Church's has no tables or chairs, and less than 10 feet of space separates the entrance and the serving counter. Only 10 percent of other Church's restaurants have this design, which is not uncommon in urban areas, said Cox.

Teen-aged clerks dressed in the store's lively colors stand behind protective glass taking orders for hot chicken, french fries and soft drinks from customers ranging from students on midday lunch breaks to dusty construction workers and mothers with small children.

The restaurant is in a block where most of the land is controlled by the Parker Group Ltd., a small private development group that for the past three years has attempted unsuccessfully to obtain financing for a large office-and-retail project there.

Samuel and Patricia Parker, who own some property on the block and have made arrangements with neighboring property owners to buy other parcels, had planned to demolish most of the buildings on the block, including the former Broadway Theatre, to make way for the new project. The city's urban renewal agency had tentatively agreed to sell the Parkers the small park at the corner of Seventh and P streets.

Last week the staff of the city's renewal land agency recommended that the city take back its property because the Parkers had failed to obtain financing after three years.

But the five-member board demurred and gave the couple more time, as it had done in March. The Parkers told the board last week the same thing that they had told them six months ago--that private financing is dependent on obtaining city financing.

The Parkers' plans have called for constructing a building that would occupy most of the block between P and Q Streets. Samuel Parker has said the Church's would not effect the planned development. Neither he nor he wife could be reached for further comment.

The problems encountered by the Parkers are typical for small developers trying to build, said Oliver Cromwell, a spokesman for the city's housing department.

"The financing is the biggest stumbling block," Cromwell said, "but it is coming along. There is so much there to be developed, and I don't think these things can happen overnight."

Crime is another deterrent to new businesses locating in the area. The area's many liqour stores and vacant storefronts attract vagrants who on cold nights huddle around trash can fires for warmth.

The crime problem must be alleviated first before the neighborhood can be revitalized, Mumin said. "Who is going to stand in line to go to a movie, if the line ends in an alley where drunks and drug pushers are standing around?"