Vexing Devil's ability is a triggered ability that happens when it enters the battlefield, and goes on the stack like any other enters the battlefield trigger. No choices are made at all until the ability starts to resolve, at this point you can choose to take 4 damage and the Devil will get sacrificed or not take the damage and it sticks around.
If your opponent uses Collateral Damage before the Devil's ability resolves the Devil will be sacrificed and you will take 3 damage. If they choose to do this there is no reason for you to take 4 damage from the Devil's ability (removing the Devil from the battlefield before the ability resolves don't stop it from happening, it just makes it so the Devil doesn't get sacrificed if you take 4 damage).
There is no time during the resolution of the ability (like after you take 4 damage but before the Devil is sacrificed) where anyone has the ability to respond with any spells or abilities.
The best your opponent can do is wait to see if you take the 4 from the Devil, then if you don't cast Collateral Damage and sacrifice the Devil to that. So they can deal either 3 or 4 damage, never 7.