So that means all the real townspeople in the game died and was also replaced by Shinra?? But how do you explain Vincent?? In Crisis Core Zack came to the mansion and he sees the tomb of Vincent but he don't touch it right?? So Shinra does not touch or change anything in the Shinra Mansion only the town houses?? And what happened to Zangan and Tifa's dad?? Have too many questions sorry.
EDIT:Forget about the question about the townspeople I've seen the report.
Zangan left. The letter to Tifa you find later says such. Tifa's dad was killed by Sephiroth (probably trying to stop him from getting inside Jenova's chamber). As for the Shinra Mansion, it wasn't touched. We don't know how or why Sephiroth decided to burn the town or how he did so so quickly after leaving the Mansion's basement. Shinra covered it up because they wanted Sephiroth to remain a hero in the eyes of the people. If word spread that one of Shinra's best SOLDIERs went crazy and torched a town they'd lose faith in Shinra. So they rebuilt the town completely and hired people to pretend like nothing happened.
I always try to put myself in characters positions and also more in a novel sense than a game sense. I forget the limitations provided by the games gprahical and animation procedures and try to imagine their world as my own,as If I were really cloud or sephiroth.
Here's my analysis.
Sephrioth's entire life and being were challenged when he saw the experiments going on in that reactor.In an already troubled life not knowing exactly where you came from, coupled with the horror of reality, made him snap.
After studying to learn his past, cloud comes, and sephiroth enters the final stage of his insanity.
Seeing how Sephiroth is so powerful, it would make sense that he is VERY fast, I always assumed he was MUCH faster than cloud, and upon exiting the mansion, he cast the mother of all fire spells on the town so that he would not have anyone in his way and could slow you down.