IM a bit confused about the bootloader thing. If I have froyo on my captivate I have to also flash some kind of froyo bootloader?
Sent from my LG-P925 using XDA
No, there is no bootloader flash required. CM7 can work with any bootloader.
Why would you do an unnecessary flash that has a risk of bricking?
if i just updated to 2.3.5 with kies is this method going to work for me? or should i go some other route?
No, that is out of date. Follow the official update guide: http://wiki.cyanogenmod.com/wiki/Samsung_Captivate:_Full_Update_Guide