Actually, I had much more problems with FF7 on XP than on my Vista. I have managed to make the game play most of other videos by first installing K-Lite Codec Pack and then putting FFDShow VFW in charge. Yes, FFDShow Video Decoder does not work with the game but FFDShow VFW is just fine. I did have a little problem of Nero codec's interference with FF7 but that's solved.
About Windows Vista quality as an OS however, I have learned that there is always a cliche in form of "[X] is horrible, fall back to [Y] and wait for [Z], which is great" where [X] is the current Windows OS, [Y] is the predecessor Windows OS and [Z] is the upcomming OS. For eight years, it was fashionable to say "XP is horrible, fall back to 2000 and wait for Longhorn (=Vista), it's great" while beta copies of Vista know as Longhorn were worshipped. Nowadays, "Vista is horrible, fall back to XP and wait for 7, which is great" is in. Live long enough and you will hear: "7 is horrible, fall back to Vista and ..."