My understanding was that the music was played using midi instructions in an AKAO format. I don't know what the deal with the PC ports is, but out of the box the original 1998 version was set up to use Midi synthesisers like Yamaha (but it wasn't a 1:1 recreation of the PS1 music, different instruments and stuff). I don't know if these read from the .AKAO files but I imagine they do. There are a couple videos floating around where people have set up proper MIDI support and recorded the music; it sounds fairly decent, not same instruments but clean-sounding.
I recently came across videos of Roland machines playing old game music and they sounded super good; it'd be really interesting to see FF7 PC midi music ran through that.