Thanks guys! I took bluespike's advice and emailed Ultrasabers. Emory advised me of the following:
" It is fine to run it off 1x 3.7V battery and and dummy cell, the LED will be fine but the soundboard will not be as loud as it can possibly be. It will still be loud, louder than a ForceFX and the other custom soundboards on the market. But it just won't be OBSIDIAN loud. If you want the Obsidian 2.0 to run at full volume the best solution is to use 2x 3.7V batteries and a BuckPuck (or a resistor)."[/b][/b]
So there you have it. Now we all know the answer.
Great! Glad you got your answer. Personally I like "Obsidian loud" but that's just me... I'd go for the 7.4V and buckpuck (or resistor).