The reason the FF7 movies are converted to these little bits is because taht is the way taht the PSX renders movies.
The MDEC engine on the PSX basicaly deals in small JPG style compression images, but it can render them very fast.
2xSai? If you wanna see what a problem that is, I suggest you try running the PSX emulator ePSXe with Pete Burnet's plugin, enable 'Hi-Res texures', play any FF game, and see the artifacts.