A B737-200 FLT CREW EXPERIENCED AN NMAC WITH A C207 AT BET WHEN THE TWR CTLR SEQUENCED THE ACFT TOO CLOSELY AND THE C207 PLT FAILED TO SEE AND AVOID THE B737-200.

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ON ILS APCH INTO BET. TWR TOLD US TO CALL THEM AT FAF. PRIOR TO FAF; THE FIELD WENT VFR AND THE TWR STARTED TO JAM SEVERAL VFR ACFT INTO THE ARPT. AT THE FAF (6.2 DME) THE TWR FREQ WAS IN CONSTANT USE. AT 5.8 DME THE CAPT WAS FINALLY ABLE TO CALL THE TWR AND TOLD THEM THAT WE WERE 'INSIDE THE FAF.' THE TWR THEN CLRED A C207 TO LAND IN FRONT OF US AND ASKED FOR HIS DME. THE C207 CALLED 1.5 DME. BY THIS POINT WE WERE AT 2.8 DME. WE HAD JUST BROKEN OUT OF THE CLOUDS AND HAD THE FIELD IN SIGHT AT ABOUT 900 FT MSL. VISIBILITY WAS REDUCED IN RAIN AND MIST. WE WERE O LOC AND ON GS; FULLY CONFIGURED (FLAPS 40 DEGS) TO LAND. WE BOTH STARTED LOOKING FOR THE TFC; REALIZING THAT WE HAD A PROB BREWING. THE CAPT LOOKED OUT THE L WINDOW; AND SAW THE C207 VERY CLOSE TO US. THE CAPT (PNF) ROLLED THE AIRPLANE TO THE R AND PITCHED UP. I HAD MY HANDS ON THE CTLS AND THROTTLES (AS PF) AND I ADDED PWR. A SECOND LATER THE THREAT WAS BEHIND US AND I RESUMED THE CTLS. AT THIS POINT WE WERE NO LONGER IN A POS TO LAND AND WE EXECUTED THE PUBLISHED MISSED APCH. WE THEN FLEW ANOTHER ARC AND ILS TO A LNDG. I BELIEVE THAT WE DID ABSOLUTELY NOTHING WRONG. THE FAULT OF THIS NMAC FALLS ON 2 PEOPLE. THE FIRST IS THE TWR CTLR WHO HAD LOST SITUATIONAL AWARENESS. THE TWR WAS TRYING TO JAM TOO MANY VFR ACFT INTO THE FIELD IN FRONT OF US. THE SECOND IS THE C207 PLT WHO DID NOT SEE AND AVOID US. SEVERAL WITNESSES IN OUR ACFT AND ON THE GND TOLD US LATER THAT THE C207 DID NOT TURN UNTIL AFTER WE HAD TURNED AND CLBED AWAY FROM HIM. HAD WE NOT TURNED; THERE IS A CHANCE THAT HE WOULD HAVE IMPACTED THE L WING. THE CAPT SPOKE WITH THE C207 PLT ON THE PHONE AND ASKED IF HE SAW US. THE C207 PLT SAID HE DID NOT. THE CAPT ALSO ASKED IF HE HAD HIS XPONDER ON. THE C207 PLT SAID THAT HE DID NOT KNOW IF THERE WAS A XPONDER INSTALLED IN HIS ACFT. HE THEN STATED THAT HIS ACFT HAS CAPSTONE AND THAT THE XPONDER IS 'HOOKED INTO IT.' THE CAPT TOLD HIM THAT OUR TCAS CANNOT SEE HIM UNLESS HE TURNS ON HIS XPONDER. THE C207 PLT STATED THAT HE DID NOT SEE US ON HIS CAPSTONE/TCAS EITHER. I BELIEVE THAT THIS SHOWS A HUGE HOLE IN THE TRAINING OF THIS C207 PLT SINCE HE DOES NOT EVEN KNOW IF HIS ACFT HAS A XPONDER. SIMPLY PUT; HIS XPONDER BEING TURNED OFF NEARLY RESULTED IN AN NMAC. THE CAPT ALSO TALKED ON THE PHONE TO THE TWR CTLR. THE TWR APOLOGIZED.