To answer that: It's a bug in FF7
It appears that FF7's movies were mastered with the wrong codec, It uses a colorspace that requires a particular video memory format. This means the movies were only designed for a particular set of graphic cards. The problem is that when the Truemotion codec detects an incompatible color format, it does a silent fallback to another colorspace, as opposed to giving an error. The problem is that the fallback mode is the wrong one.
Here are how the errors are laid out.
1) The FF7PC design team convert the PSX video into 24 bit graphics.
2) They design the game to run in 16 bit mode <---- Mistake number 1
3) When the movie plays, the video player makes a request for 24 bit color space <---- Error in FF7
4) Truemotion reads the FourCC, realizes that it can't play 24 bit color in 16 bit, so it does one of two things.
a) Converts the video to a {YUY2} colorspace (This is a 16 bit colorspace, it is an alias for {2YUY})
b) if that fails because of a video card error, it converts the video to the {UYVY} codec. This is a YUV 4:2:2 (8 bit) colorspace (Y sample at every pixel, U and V sampled at every second pixel horizontally on each line)
The problem is that the fallback is supposed to be {YVYU}, which is a 'YUV 4:2:2 colorspace like UYVY but with different component ordering within the u_int32 macropixel. Because macropixel (8x8 block) is rendered in reverse, the picture is rendered from the bottom-up as opposed to top-down... or upside-down!
The patch appears to fix the fallback.
My guess is the FF7PC dev team assumed the truemotion codec fell back a particular way when it didn't. In their defense, it's not like they had the sourcecode to truemotion, so they didn't know. I still lay the blame on them. It was their fault to have the movies encoded on the wrong colordepth in the first place.
Wow, mystery solved! Good job!