I did the same and found his Masamune missing as well. I solved that issue by attaching the Masamune model into his hand bone and removing the models from the weapon bone altogether. Now he wields the Masamune correctly, at least.
And yes, you can use the animations without trouble. The problem is, Sephiroth is a special case when it comes down to his missing animations. If you try to attack him, the game will get stuck because it's waiting for Sephiroth to complete his damage animation script... which is a copy of his idle anim script, so it will loop forever. I fixed this by having his Pre-Battle AI define another damage animation ID... for the time being, I use his "missed" animation. I think its ID is 8.
Now for his attack animations. There was a good list around which I ultimately ended up using to ease up my stress.
These are the Animation IDs you will want to use in the Animations & Formations section in Proud Clod:
14= Attack animation
15= Slash animation16= double slash (doesn't work very well)17= Magic animation (only works with magic materia)
18= double slash (doesn't work well)1B= Deathblow animation1C= Flash animation
1D= Magic animation (this works with all attacks)
1E= Enemy Skill animation
1F= Summon animation
Note: The IDs with the strikethrough indicates Sephiroth can't use them. He doesn't have animations for those.