Actually, I've had the same problem. It's sort of a hidden file. I found out when I was using the LGP tools that my save files were there (I was trying to open up the char.lgp) the folder just had a lock symbol on it. I copied and pasted it elsewhere, and then copies it back into the FFVII folder, and I could see it. I would give you a screenshot, but I don't know how. XP
Open LGP tools (if you have it) and select open. You will have a "Windows Explorer" window open, go into your Final Fantasy VII file and you should see the save folder there, with a lock on it.
I don't know why, but Vista and Windows 7 seem to like making files like these. Hope it helps.