I discovered this by accident lol. I was using the Sephiroth patch and I was feeling hyper, so I made a party of Sephiroths to go through the game with. Problem is that it sometimes freezes the game when you get to certain events.
The disadvantage to this is that if you change one of the characters' equipment, materia, etc., then the changes will be made to the other two (since they're all the same person). This means that you have to charge into the arena with three Clouds with exactly the same equipment, materia, and stats. So there are disadvantages, and if you ever find what you're looking for, it'll be far more effective just to change the way things work in the Battle Arena.
Alternatively, you could look for the enemies that are encountered in the battle arena (using Hojo) and make them weaker. This won't affect your game too dramatically. In fact, I believe that there are two Scenes with Proud Clod in it, one for the boss battle and one for the arena. You could make the former reasonably difficult and the latter as easy as you like
And now that NFITC1 has released Heidegger, there are very few things about enemies that you can't edit without a hex editor.
I'm kinda stating the obvious, aren't I?