I am going to necro this topic, since i have found the solution to my problem.
Final Fantasy VII uses the AWE32 ROM samples for some instruments, so this is the correct setup:
bank 0 - 1mgm.sf2
bank 1 to 8 - ff7.sf2
Some tracks sound laughibly bad thanks to the ROM samples (Underneath the Rotting Pizza)
I am recently replaying Final Fantasy VII using EPSXE with an XBOX360 controller, so no problems here.
This post is the proud winner of my prestigious "post of the day" award. ~Covarr
But seriously, this is how you necro a thread. It actually contributes something and may be helpful to others in the future.