I decided to upgrade to the newest release of DirectX and video drivers for my Radeon 9700 graphics card. Following this change FF7 took a deep dip in 3D performance, mainly during battles, 2D scenes still render like a rocket, while 3D battles renders like if I was running it through slowdown.
I've tried the DX uninstallation tool and reverting to the old drivers, but it is still the same.
1GB RAM, 2 GHZ, and windows XP with DX 9.0b and Catalyst drivers 3.2 and 3.6 (I've tried both)