As for WAV, the disc space pretty much sums it up. You couldn't fit all the songs in the game in uncompressed WAV format at a decent quality on one CD, as evidenced by the fact that the soundtrack took four (CD-audio is virtually identical to uncompressed WAV). Even if you cut out songs that are only used in specific discs, similar to the FMVs, you couldn't fit all the music, especially alongside game data and FMVs. The only way to manage it would be to significantly lower the audio quality to 8KHz or so, at which point the music would sound significantly worse than the MIDIs, more akin to AM-radio.
I suppose it have been at all possible to compress the WAVs, then extract to disk, but hard drive space was pretty scarce in those days. Whilst I guess Square *could* have offers two options with regards music, that would have been twice the amount of audio to test and manage. The only alternative I could think of would be a customized MIDI player, but that would be its whole own project, that would have cost a fair bit for (potentially) only one port.
How did FF8-PC deal with music?
