The 2012 rerelease of the game did something like this, and with at least somewhat of a budget. It's probably better done than any of the fan-made ones I've seen. Only issue I have is that they relied a bit too much on temporal denoising, which works well in moving scenes, but there's serious compression artifacts where things stand still.
If you can do the interpolation, that could make this a better project than what's out there. I will warn you that past attempts at interpolating these videos have resulted in some pretty glitchy videos, particularly on the more high-motion FMVs.
Widescreen conversion probably isn't worth it, as we can't use the extra space on a widescreen monitor to view these in-game. Using Aali's driver, we either get the original game scaled as large as possible while keeping its aspect ratio, or stretched to the wrong aspect ratio... But the image it's rendering is still 4:3 or thereabouts. With widescreen videos, at best what we'll have is FMVs that don't overlay characters in the right spots, and at worst just flat out don't display properly in-game.
