This is very replicable. I did a completely fresh install and played around a bit, everything works fine. I decided to go ahead and install FF7music and the AVALANCHE mod (looks awesome by the way, guys). I get to the part where the party leaves Midgar to go into Kalm, and it crashes on entering the city.
There is nothing in that beginning Kalm scene that would be altered by AVALANCHE, so my only guess is FF7Music is causing this. However, upon checking the app.log in my FF7 folder and the one in my ficedula folder, all I get is "unhandled exception". So I check the crash.dmp and the only error there is from red13.t09 (i think its t09, maybe t01).
Any ideas guys? I love my FF7Music and would hate to listen to midis for any length of time

I'll see if the custom driver .7.1 will allow me to progress a little later.