does this mean that the psx character battle models can be textured as long as the file is the right size?
File size is not an issue, at all. Using external hi-color textures for each weapon and mapping them correctly to a model are the real issues (but Millenia solved the second one for me here). Currently I'm using a 128x128 texture with 128 colors for the weapon, and there could be a second one 128x128 texture for the character. Unfortunately VRAM is organized in a manner that allows only 224 vertical lines in total, so a second texture would have to use less vertical space. Consequently, the smaller texture would have to use a 128x96 resolution or less to fit in the given space.
The work done so far takes an 3DS model as input, converts it to the "battle .p" format, and replaces the texture segment with another TIM picture. Only weapons are supported so far, as I haven't coded yet any routines to convert multiple 3DS objects and joints+skeleton structures. If I can get my hands on more stuff, like a textured version of the original Cloud, I'll try and expand the conversion code to make it sparkle.
Back to texturing: the plan is to add support for separate weapon models+textures as a separate file, like I suppose FF8/9 do, unless routines to do so are already there and I didn't notice (could be, like for those spells loading data as requested). This change should make character models slightly smaller (Cloud's is 43,4 KB smaller without the weapons) and retain fast loading times.
Interesting fact: there's room for an extra palette (max is three), which means that a texture could use two palettes and make full use of 256 colors with a simple swap trick.