COLORADO SPRINGS, Colo., March 10--A smooth Michigan sextet with a solid defensive wall waited out seven spasmodic penalties and still had enough time to score a crushing 7-3 victory over the varsity hockey team here tonight before a capacity crowd of 2,700 at the Broadmoor Ice Palace.

The rough Wolverines jumped to a quick 2-0 lead in the opening period and stayed ahead at 4-2 in the second stanza, although the determined Crimson skaters consistently managed to fight the puck into the Michigan zone. Center Bill Cleary was the varsity's offensive standout as he broke the all-time NCAA scoring record with his second goal unassisted in the middle period.

The Crimson defense, de-emphasized during the season because of the team's strong offensive power, was the main weakness tonight and could only hold the Wolverines' fast attack during the second period, when Michigan's two goals were questionably earned.

Wolverine Captain Brian MacFarland matched Cleary's brilliant offense play while netting his seventh hat trick of the season. Two of his tallies were unassisted.

Best news in an otherwise depressing day came with the NCAA's announcement this afternoon that Terry O'Malley had been declared eligible for competition in the tournament.

Center Bill Cleary and goalie Charlie Flynn were named to the first team of the All-American Hockey Squad after a poll of NCAA hockey coaches, conducted yesterday by a Colorado newspaper. Colorado College also placed two players on the first team.

Both goalies, Michigan's Lorn Howes and Charlie Flynn, turned in 41 saves, many of which, particularly for Flynn, brought standing cheers from the enthusiastic crowd.

Michigan Defense Effective

Michigan's defense system, although frequently altered because of the numerous penalties, usually consisted of a straight column of players, stretched across the rink, and proved to be amazingly effective.

The Wolverines, despite the mishaps, most of which were called for tripping, skated with a minimum of the rough play which in generality characteristic of the Western teams. The Crimson, however, more than once halted opposing attacks with hard dumping body checks.

The varsity's only two penalties came in the final period. At 13:02 Michigan capitalized on Cleary's miscue to score its seventh goal with a screen shot by Jerry Karpinka from the face-off circle.

Coach Conney Weiland continuously shifted the first two varsity lines, mostly to give the players rest while becoming accustomed to the different altitude.

Michigan's first score came at 4:36 of the opening period after a sensational sequence of saves by All-American Flynn, McFarland squeezed down into the Crimson zone between Mario Celi and Doug Manchester to sink a low shot in the left hand corner, unassisted.

The Wolverines first line scored again at 17:05 when a barrage of players screened Flynn from a high, bouncing slap shot. The sharp Michigan sextet, playing with only ten men during the first two periods, added a third tally at 3:21 of the second period before the varsity could net its first goal.

After the second line of Ned Bliss, Frank Mahoney, and Terry O'Malley had consistently pushed the puck into the Michigan zone for two minutes with Michigan one man short, Captain Scott Cooledge took a face-off and sent the game's best pass set-up to Cleary. He turned goalie Howes into a sprawling position, to score at 7:58 of the second period.

The Wolverines netted their fourth goal before Cleary could race down through the entire defense to break the NCAA scoring record at 15:15 with his strangest tally of the season. Howes actually stopped the Crimson netter's solo shot, but defenseman Bob Pitts kicked in the rebound with his skate and Cleary was credited with the score.

A slap shot by Mahoney at 1:29 in the final stanza brought the varsity within one goal of Michigan's elusive lead, but one minute later Captain McFarland was off again, and the Wolverines all but extinguished the Crimson's hopes for its first national title with two quick goals at 2:15 and 3:24.

The tourney's benefactor, Mrs. Spensor Penrose, 86 year-old owner of the Broadmoor Hotel and the principal motivation behind the hotel's sponsorship of the tournament, was carried from the palace early in the second period when she was hit on the head by a stray puck