I think people found a softlock there in the past but I wasn't able to replicate it; my guess is that it's to do with the dialogue boxes and the speed they're closed at. I tried it slow and fast but wasn't able to recreate it at the time.
The Red XIII thing sounds odd; are there any other mods enabled?
Might be tied to the balancing issues as well if something has been changed or altered by something; one way to check is to use Sense on an enemy to check its HP and weaknesses. Try scanning a Grand Horn around the Gongaga area on the world map (non-forest area), it should have these attributes;
LV: 24
HP: 760
Weak to Pierce
If this info is different in any way, then something's affected the files.
***
Edit: Thanks to C. D for the donation, much appreciated
Thank you for your reply! So, I ended up using an older save and just catching up again before I read your message (it was a save on the ship to costa del sol). I am already past the Nibel area, and everything seems to be working fine. I used sense on the monster, and it showed your values. I am not sure what was up with that other save, I wonder if I messed it up that one time I booted up that save with the 1.5 NT mod (but did not save over the existing 2.0 save).
That brings me to my next question. What is the best way to have saves from 1.5 and 2.0 without messing things up? Do I need to move all the saves from 2.0 outside the FF7 save folder and have it create new saves with the 1.5 mod? At some point I would like to have a playthrough of the 1.5 Arranged version but I do not want to mess up my 2.0 progress.
These are the mods I am using for reference:
Graphics:Cosmos Limit Break
Tsunamods spell effects
Tsunamods avalanche arisen battle textures
60fps gameplay
60fps animations for ChaOS mod
Tsunamods Mini Games Upscaled Textures
Character models:ChaOS
UI:Tsunamods Enhanced Stock UI
World map:Cosmos Gaia
Combined HD World
Media:Cosmo FMV
Cosmo Memory
Tsunamods Arranged Soundtrack
Gameplay:
New Threat 2.0 Type A