Would have been a hell of a prequel. I mean, prequels/sequels usually suck unless they aren't true prequels and sequels (like the FF series vs the Matrix)
And yeah Square has been abysmal recently (though some people on qhimm have decent opinions of 13-2) but I've always had a soft spot for FF8 and a prequel would let them fix many of the flaws in the original game.
I personally thought the story was solid; one of those that had you thinking about it for days later, and sometimes spawning ridiculous theories like the Squalls Dead theory or the Rinoa=Ultimecia theory. A lot of people bash FF8's story-telling technique, but as a story it wasn't too bad.
I personally believe that a very good framework for a prequel has been laid out for it. Laguna is a character, whether you hated his bumbling stupidity or loved his stupidly charismatic personality, would be a great character to base a game around. He definitely matures throughout the game and you notice it too. I remember thinking Laguna was an idiot when I first met him because of how stupid he acted around Julia, but he's matured beyond loving her for her looks, and he meets a girl who's personality and motherly instinct fulfills his wants.
The concept of time-travel in FF8 can really be pulled off very well or very poorly, but since it exists in the original it can definitely make an appearance without seeming outrageous.
And I'm sure I could make a dozen other points storywise. but one of the main reasons I think it could be good is the fact that FF8 tried to stand out, and though it failed, the story/feel of the world was one of my favourites. FF8 is probably the Final Fantasy that felt the most personal to me. I mean FF7 great game though it was, it seems rather impersonal because in my opinion it was how the game introduced the main characters thoughts to the audience. And well.... A prequel could fix the battle system and a lot of the mistakes that were made.
Though Square would charge DLC for really stupid stuff.... And there's a good chance it could f*ck sh*t up.
You'll have to excuse a die-hard final fantasy fan for dreaming though.