Beats me.... All I remember about that subject was a fix for Win95-98. And you can't do that fix with WinXP, because the options isn't there.
In Win9x you would go to windows add/remove programs, windows setup thing....and check Audio compression inside multimedia. The cause back then was because Audio compression wasn't checked. But WinXP doesn't have that option.
The only thing I can think of is that you have FX sound muted or lowered in you volume settings. Do you hear a chocobo chirp during the Test?
Maybe your sound card isn't compatible, or something? If you have an extra harddrive laying around....or room for a partition, you can try doing a fresh install of windows, and see what happens.... If it works, then it's some kind of software conflict. If not....probably a hardware problem.
I don't think the Yamaha drivers work with FF7....did you play around with that, maybe?