If you model it completely by yourself, or if you use a model that's a;ready in the game, I believe it's alright. But (if you read the rules) ripping models, or anything, from other games is completely unsupported. I think there are certain exceptions, but I don't really know. By the way, welcome to the forums. Your next stop should be reading and completely understanding the rules. (well, it should be you first stop).
I think Cait Sith is the least liked character in FFVII. You know what you could do? Replace him with Reeve, the dude who controls him. Might not work well story wise, but hey, it'd be fun.
Red XIII ( I always call him Nanaki) is actually a pretty good character. I liked him. Though if you want, you can try to change his textures. Back when they were still working on the plot for FFVII, Red XIII was a part of some cloning project, and his clones were Blue 15, green 14, etc. maybe you can changes his textures for that.
I can't really help, because I don't know how to model (yet) but it's just some ideas for you.